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Despite the market never caring much about consistent profits from Tesla to begin with (the company has been anointed with a more than $500 billion market cap and is trading with a trailing P/E of more than 1000x) it appears that Elon Musk is attempting to shift his company’s focus back to profitability and cost savings. 

Perhaps Musk has realized that selling EV credits to turn a profit isn’t a long-term solution to profitability. The market, meanwhile, has been enamored with Tesla’s ability to turn “consistent” profits somehow, while mysterious option buyers in the name have added fuel to Tesla’s stock price over the last year.

Now, it looks like Musk understands that the rubber is going to have to hit the profitability road for real at some point. 

At a time like this, when our stock is reaching new highs, it may seem as though spending carefully is not as important. This is definitely not true.

When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that’s not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!

Imagine that – small margins in the auto industry. Who would have thought? Musk also urged spending cuts: 

Much more important, in order to make our cars affordable, we have to get smarter about how we spend money. This a tough Game of Pennies — requiring thousands of good ideas to improve part cost, a factory process or simply the design, while increasing quality and capabilities. A great idea would be on that saves $5, but the vast majority are 50 cents here or 20 cents there.

It’s hilarious that Musk is begging for small cost cuts when the cars that are currently rolling off the line at Tesla are already being subjected to horrifying quality reviews. For example, Consumer Reports decided to not “recommend” the company’s Model S and panned the company’s Model Y “due to a decline in their reliability” last month. 

Model S ratings dropped due to issues with its suspension – the very same issue Tesla claims China “wrongfully” made it recall vehicles for overseas last month. The Model Y suffered from “hardware and paint problems,” according to CNBC. 

Previously, Consumer Reports had named the Model S its top rated vehicle ever in 2015. It’s amazing what can happen, though, when you actually drive a few of them off the lot and put some miles on them for a couple of years. Those 20 or 50 cent cost cuts that Musk is urging wind up catching up to you. 

We have already documented numerous Model 3 quality control issues, including the vehicle’s bumper falling off “more than expected”. We’re not sure exactly how expected it should be that a bumper should randomly fall off of a car at any given time, but we digress. 

Our friends over at InsideEVs released a scathing piece over the summer about Tesla’s Model 3, noting that the car’s bumper has a tendency to fall off at a rate that is “more widespread than expected”.

The blog shared three different horror stories of bumpers flying off that were sent to it after they posted their first article about a Model 3 bumper flying off. In all three cases, the owners were told by Tesla that the repairs would not be covered.

Regardless, it appears that nearly a half decade after Tesla has started producing cars Musk is starting to realize what a capital intensive business it is. Even more important, with all types of “tricks” to goose the stock running out, Musk may be realizing that the company’s valuation could be heading for a cold hard reality check at some point in the near future.

We can’t wait to see that first 2021 earnings report…

By Matt Taibbi, via SubStack

Whether it’s CNBC telling us what issues mattered to the young in the presidential election, or Yahoo! Finance telling us the big winners in the 2020 election were “young people and student voters,” or Forbes telling us “young people with student loan debt have a harder time reaching financial milestones,” the student loan controversy is almost universally presented as a “youth” issue.

This is the first of many deceptions baked into coverage of one of the more misunderstood and misreported issues of our time. Student loans matter to older people, too. In fact, that’s the problem. They matter far too much, to too many older people.

“People that are 45 years and older, that’s where the student loan problem is a real issue,” says “Chris,” who took out his first loan in 1981. “Because those are the people that normally would have the highest balances.”

Now 59, Chris asks to tell his story under a pseudonym, to protect the service industry career he’s built in part with the hope of someday escaping his student debt.

“In the realm I’m in now, I don’t really advertise the fact that I owe $236,000,” he sighs.

It’s often argued that forgiving student debt would unfairly punish other groups, particularly those who “did the right thing” and paid off their loans. In truth, political changes have already punished plenty of student loan holders. Chris is a prime example.

He grew up in the Midwest, and began studying philosophy and political science at Southwest Missouri State (now called Missouri State) in 1980. He began paying for his undergrad studies upfront, a decision that would have fateful consequences. He entered school just as Americans were electing Ronald Reagan, who wanted to dramatically re-order federal spending priorities. Among his first acts: raising the interest rates for some federally-guaranteed student loans from 7% to 9%.

“What’s really ironic,” Chris says, “is that if I hadn’t paid cash the first year and a half that I was in college, my loans would have gotten locked in at a much lower rate.”

Paying the Reagan rate instead of the pre-Reagan rate was Chris’s first political misfortune. The second kicked in years later, in the mid-eighties, by which time he’d transferred to the University of Missouri-Columbia, graduated with a B.A., entered and completed a grad program there, and moved on to Joe Biden’s Alma Mater at Syracuse law. He left graduate school owing $14,000, and left law school with a total balance of $79,000.

He thought he’d be graduating with a law degree, and expected to be able to make his payments. Part of his calculation involved the fact that student loan interest was once tax-deductible, much like mortgage interest. But the Tax Reform Act of 1986 began a see-sawing journey for the student loan deduction, essentially eliminating it as a personal deduction for a time.

“I looked at education as a capital expenditure,” Chris says. “Part of my strategy was, is that the interest would always be tax-deductible. So that would at least give me a little bit of a [cushion] in making my payments, because, I would have that tax deduction.”

After they changed the law, “It was like, ‘Wow, this is going to be difficult, this is going to be interesting.’”

The loan system we have now is predicated on a few key assumptions, all unrealistic. One is that people graduating with higher education degrees will be immediately employable in their chosen fields. Even with the sort of professional credential that once meant nearly guaranteed income in America, like a law degree, this is no longer true. Job markets tighten, economies hit recessions or worse (in the years after the 2008 financial crisis, for instance, the number of law school grads still looking for jobs a year after graduation nearly tripled, from 4.1% to 11.2%), and technological or cultural changes can lower the value of degrees.

The other assumption is that people with higher degrees will stay in their fields, and avoid accidents, illnesses, personal problems, and other detours. In the nineties, Chris became disenchanted with the law, and went through a “riveting” divorce that hit him with a slew of unexpected costs (including, ironically, legal fees). He missed a few payments, and then began missing them altogether, beginning a period of years when he paid nothing at all — in part because he was underemployed after leaving his law practice, and in part because he just handled his loans “in a cavalier, stupid way.”

“I’ll take ownership of the fact that my stupidity bought me a [ton] of interest and penalties,” he says now.

In 2002, Chris got a middle-level job with one of the world’s larger service-industry companies. His first position paid him $28,000 a year, but he didn’t see much of that money. In 2004, his wages began to be garnished. A single federal lender can garnish up to 15% of “disposable” pay, i.e. what’s left over after mandatory withholdings. If there is more than one lender, they may garnish a maximum of 25% of wages.

Chris’s pay was garnished at 15% from 2004-2011, and at 25% from 2011 on. He paid, but didn’t gain ground, thanks to another painful quirk of the system, involving the order of obligation.

“They apply your penalties first, then your interest, then your principal,” he says. “So really they’re guaranteeing that you’re never going to pay down your loans.”

Into his second decade of garnishment, Chris was paying pure penalties, fees, and interest, not touching a dollar of principal. Although the government had since re-introduced some student loan interest deductions, these were capped at $2500 per year. “At the height of my garnishment, I was paying $900 every two weeks,” he says.

Career advancement didn’t particularly help his cause, as raises just meant he was able to pay more in fees and interest on an inalterably enormous core debt. Through 2020, when student loan obligations were halted due to the coronavirus, he paid $190,000 on an original debt of $79,000. His current balance? The aforementioned $236,000.

Politicians when they talk about student debt usually talk in terms of amounts owed, but the dirty secret is the American system is about streams, not sums. The tension in this game is between borrowers trying to chop their debt into finite, conquerable amounts, and lenders who are incentivized to make the balance irrelevant, turning people into vehicles for delivering the highest possible monthly bill, without the real possibility of repayment.

Having some business experience, Chris tried multiple times to renegotiate his debt with the company that ultimately ended up servicing his debt after all of his loans were consolidated. No dice. As he advanced in age, his appeals began to contain a mixture of desperation and amazement, as he realized how completely disincentivized his lenders were to compromise.

“I’ve even used the argument, ‘Look, you know, I’m 59 years old right now, my life expectancy is 15 more years. At this rate, you’re not going to get very much.’” He pauses. “I told them, ‘I’m probably going to retire in nine years. And my income is going to go down.’ And their response is, ‘So?’”

Like a lot of student loan holders, Chris no longer expects that he will ever pay off his loans, or even begin touching the principal. He’s heard the stories of people having their Social Security payments garnished and wonders if that is in his future. While he understands that the reaction of some hearing his story will be that he brought his problems on himself, he has now paid two and a half times his initial balance, and is scheduled to pay it at least five times over, if he doesn’t die first. Even accounting for his “stupidity,” he figures, “I paid my student loans.”

Chris’s experience is by no means unusual, something he feels politicians either fail to understand, or consciously ignore.

“Whether it’s Elizabeth Warren, or Biden, or even Trump — whoever — when they talk about student loans, they throw around numbers like $10,000, or $20,000, or $50,000,” he says. “Those numbers are basically applicable for people that have really low amounts of student loans. And it doesn’t take into account loans that are in a distressed condition.”

Chris made mistakes, but as he’s noticed, so have other types of borrowers. “It doesn’t appear that we seem to hesitate much in giving money to Ford or Chrysler, or a collection of banks,” he says, citing bankruptcies, bailouts, and other programs.

“They have tools,” he says, “the individual does not.”

Bad news is bad news this morning… for now.

Stocks are weaker after the ugly jobs data…

And bonds are betting battered…

The dollar is unchanged for now and gold is choppy but holding modest gains.

Yesterday, we reported on chatter that the chances of a Brexit Deal before Jan. 1 – when the UK will finally complete its official separation from the EU – were “receding” as no real progress had been made on the deal’s biggest sticking points, which include: fisheries access, rules about a “level playing field” for businesses and issues of legal sovereignty.

Summing up the events of yesterday, Sky News reported that the Thursday talks “did not go well”.

But by Friday morning in the UK, the outlook had apparently improved somewhat after Reuters reported that a deal between the two warring parties might be “imminent”, and that investors could expect a resolution by the end of the weekend. Since we weren’t born last night, we understand that any deal optimism should be taken with a grain of salt.

Still more promising signs emerged as Sky News reported that Michel Barnier had cancelled a video briefing with 27 top EU diplomats from the bloc’s remaining member states, and was apparently delaying his return to Brussels to hang around for another “important day” of talks in London.

On the other side, a top No. 10 spokesman insisted that talks had reached “a very difficult point” even as the British team, led by Lord David Frost, was trying “extremely hard to bridge the gaps”.

Commentary from officials on both sides was notably vague, as Charles Michel, head of the European Council, refused to even confirm the next expected deadline, the European Council meeting set for Dec. 10, when asked by a journalist if that was the latest point a deal could be struck by. “It’s unfortunate that it took longer than planned but we’re still currently negotiating and Michel Barnier is leading the negotiations, so we’ll see over the next few days what the next steps are,” he said in a briefing on Friday.

All the while, there’s been more chatter about Barnier digging in his heels, saying a “bad deal” now would be worse for the EU than a “good deal” next year, after the UK has been forced to contend with heightened barriers to trade with some of its closest economic partners. Brussels is even threatening to create serious ructions in European financial markets by cutting off the City of London’s financial industry.

On the British side, Tories and Boris Johnson have threatened to reactive the most controversial clauses of the “Intermarket” bill, which would effectively override the “Irish Backstop” fail-safe to try and force the EU to close the border between Northern Ireland and the Republic of Ireland, something politicians fear might lead to a revival of “the Troubles” – ie sectarian violence between Catholics and Protestants in Northern Ireland.

Assuming we don’t get a deal this weekend, Brussels’ new strategy is pretty clear: Hold out on a deal, wait for Britain to suffer the severe economic disruptions and financial hardships that economists have been doomsaying on for a few years now. Once the Tories have been suitably chastised, a chastened Lord Frost will perhaps return to the bargaining table.

Of course, the UK crashing out of the EU without a deal would be a double-edged sword for the bloc.

Plus, there’s reason to suspect that Boris Johnson, who has carefully cultivated his reputation for hard-nosed dealmaking, won’t ever cave.

Whatever happens, this is shaping up to be one epic game of geopolitical ‘chicken’.

Authored by Charles Hugh Smith via OfTwoMinds blog,

An idea that’s simple as an abstraction – vaccine ID cards – turns out to be extremely difficult once real-world operational realities must be dealt with.

Authorities around the world have made it clear that they will do “whatever it takes” to vaccinate their citizenry with one of the first available vaccines. Authoritarian states may mandate universal vaccinations while less authoritarian states will favor a “carrot and stick” approach of offering benefits to the vaccinated and exclusions from employment, education, travel and most of everyday life for those who refuse to be vaccinated.

To identify the vaccinated and unvaccinated, many nations are planning to issue ID cards or “vaccine passports.” As an abstraction, this seems straightforward, but if we start digging into the actual operational requirements of this mass ID card issuance and distribution, a number of common-sense issues arise.

Vaccination cards will be issued to everyone getting Covid-19 vaccine, health officials say (CNN)

First and foremost, it’s unknown how long the immunity offered by the vaccines will last. It’s still early days, so there is conflicting evidence: some claim the vaccines will be longer-lasting than the natural immunity of those who caught the virus and recovered, while other evidence suggests the immunity might decay after six months. Despite claims that natural immunity is long-lasting, a non-trivial number of people who had Covid have been re-infected.

Nobody knows how long either natural or vaccine immunity will last because not enough time has elapsed to collect sufficient data.

Given these intrinsic unknowns, how long will the ID card be valid? It’s easy to imagine variations in individual responses such that the vaccines’ effectiveness decays more rapidly in 20% of the vaccinated. This variability would introduce tremendous unknowns that no ID card could reflect: is the holder of the card at Month 10 still immune or not?

If the duration of the vaccine’s effectiveness is variable, then an ID card could be misleading. In other words, being vaccinated with a variable-duration vaccine tells us nothing about the individual’s actual immunity down the road.

Given these unknowns, the vaccinated may need booster shots in the future, and the ID cards would have to be re-issued. The task of keeping track of hundreds of millions of vaccination records, identities and then issuing ID cards is a non-trivial task.

To thwart black-market fake-ID cards, the security measures will have to be equivalent to a driver’s license or passport. Have you applied recently for either of these forms of ID? The process is painfully slow. The systems in place to process state drivers’ licenses and U.S. passports are already strained, and which agency is prepared to verify the identity of 280 million adult citizens, confirm the validity of their vaccine and then issue ID cards–and then repeat this process in a year?

If the procedures for issuing vaccine ID cards are slapdash due to time constraints–for example, downloading a digital record from the vaccine distributor or a printed card–these will likely be vulnerable to being duplicated or spoofed. Fake vaccine distributors will pop up issuing bogus digital records, hackers might download and sell digital records from trusted sources, and so on.

Then there’s the extra burdens being placed on the staff of airlines, cruise lines, etc. to scan these documents and deal with rejected cards. Who will have the legal authority to deal with claims that a rejected card is actually valid? How many smaller establishments simply won’t have to staff to do more than glance at the card?

Do authorities have the means to issue hundreds of millions of absolutely secure vaccine ID cards and then monitor all the attempts to find loopholes and weaknesses in the process? If authorities think that strict penalties will limit this activity, they underestimate the difficulty in getting such penalties enforced by overloaded court systems.

In nations with strong traditions of civil liberties, there will be pushback against mandatory vaccinations with essentially untested vaccines and against national databases tying identity to vaccination cards–a situation ripe with potential for abuse.

Authorities don’t seem to grasp that many of those hesitating to get vaccinated are not anti-vaxxers; they simply see the vaccine approval process as deeply flawed for common-sense reasons: for example, there is simply not enough data on safety, duration and real-world efficacy.

Authorities are counting on the “carrot” of air travel, cruises and concerts to persuade skeptics to get vaccinated despite their concerns. What authorities don’t seem to realize is that a great many people value their health, privacy and agency far more than they crave air travel, cruises or concerts. They will gladly forego all these activities until more reliable data is collected, peer-reviewed and distributed for analysis.

The more draconian the measures designed to pressure people into getting the vaccines, the greater the reluctance of skeptics who see the draconian measures as additional evidence the vaccines are half-measures being forced on the populace as a means of imposing a false assurance that all is well and “normal” will return as soon as the skeptics cave in and get vaccinated.

There’s also the possibility that the virus could mutate in ways that moot the vaccines’ effectiveness. While this is widely considered unlikely, it’s not impossible, either. If a mutated virus arises that evades the vaccine, then what value will the vaccine ID card have?

An idea that’s simple as an abstraction–vaccine ID cards–turns out to be extremely difficult once real-world operational realities must be dealt with. The fact is the first vaccines have been rushed to approval with virtually none of the testing demanded of previous vaccines raises common-sense concerns which cannot be dissolved with force or carrots and sticks.

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A Hacker’s Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook coming soon) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF).

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

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As noted earlier in our preview, consensus expected a return to weakness in the labor market as surging Covid-19 case counts have led to to a return of lockdown measures, which explicitly means less hiring and sure enough moments ago the BLS reported that in November, a paltry 245K jobs were added, a huge miss to the 470K expectation and a sharp drop from the 610K revised October print. In fact, this was the lowest monthly addition since the April crash.

At 215K, this was the biggest miss to expectations since March.

The change in total nonfarm payroll employment for September was revised up by 39,000, from +672,000 to +711,000, and the change for October was revised down by 28,000, from +638,000 to +610,000. With these revisions, employment in September and October combined was 11,000 more than previously reported.

As noted earlier, the biggest hit was in retail trade, as retailers have been crushed due to covid, resulting in a loss of 35,000 retail jobs, “reflecting less seasonal hiring in several retail industries” according to the BLS. Additionally, government employment declined for the third consecutive month, decreasing by 99,000 in November. A decline of 86,000 in federal government employment reflected the loss of 93,000 temporary workers who had been hired for the 2020 Census. Offsetting the contraction in government, private payrolls rose by 344,000, missing economists’ median estimate of 540,000.

The unemployment rate continued to slide, dropping from 6.9% to 6.7%, with unemployment rates for blacks and hispanics also dropping to 10.3% and 8.4% respectively.