Here Is The One Indicator That Convinced BofA Another Market Crash Is Coming

Here Is The One Indicator That Convinced BofA Another Market Crash Is Coming

Picking up on a warning it first issued three weeks ago, Bank of America’s derivatives group doubles down this week, cautioning again that “history suggests it would be highly unlikely for the S&P not to re-test its Mar-23rd lows given both the size of its recent drawdown (-34%) and the fact a recession is underway.”

However, the speed of the recent bear rally on the back of record and rapid policy stimulus, shown in the chart below…

… has some wondering if this time is different?

Meanwhile, the flip side of the fast market rally is the rapid collapse in the VIX, and as BofA’s Benjamin Bowler again points out, since the VIX peaked and the S&P bottomed in mid-March, VIX has been falling at among its fastest pace in history, dropping this Monday (27-Apr) below what the 5 fastest decays in history would suggest.

However, and as Hugh Hendry picked up in his latest twitter thread, VIX isn’t the full story as longer-dated vols (e.g. 6m VIX futures) have actually been rising, not falling, during the rally which to BofA means that volatility could continue to remain elevated for longer and suggests markets are indicating increasing systemic risk.

Both spot VIX and 6m VIX futures trading above 30 offer clues about what derivatives markets expect the S&P’s path to be in the medium term. Of all instances since 1990 in which VIX was above 30, there were 105 days in which VIX also closed above 30 6m later. Strikingly, only 3 of those days (twice in 1998 and once in May-2009) happened outside of bear markets, i.e., only 3 times was VIX above 30 outside of a bear market and also above 30 6 months later. Additionally, vols on markets less directly supported by the Fed (like commodities) have also been rising, “indicating deepening recessionary risks that history shows equities are unlikely to escape.”

As Bowler ominously concludes, “assuming VIX futures markets are pricing in this fact, the 6th VIX future trading above 30 suggests the expectation is that the bear market is likely not over.”

And just in case that wasn’t explicit enough, the position from BofA’s derivatives team – which clearly differs from the Bank of America’s far more cheerful and bullish “house view”, is that “US equities are in a bear market rally and that they are likely to retest the lows before a full recovery, a view supported by strong historical evidence.”


Tyler Durden

Thu, 04/30/2020 – 13:26

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Trump’s ‘National Security’ Steel Tariffs Are Just Old Fashioned Protectionism. Here’s the Data To Prove It.

American manufacturers have filed more than 100,000 requests for relief from the Trump administration’s steel tariffs. Take a close look at which requests have been denied, and you’ll glimpse the depth of the cronyism contained in this scheme.

Since June of last year, the Commerce Department has granted just 1 percent of the exemption requests that were challenged by domestic steel producers, according to government data aggregated by researchers at the Mercatus Center. By comparison, the department has granted 70 percent of the exemptions that were not challenged by domestic steelmakers.

When Trump imposed a 25 percent tariff on imported steel in March 2018, he also instructed the Commerce Department to allow American businesses to seek exemptions from those tariffs, which can be granted if domestic metal supplies are shown to be insufficient for a company’s needs.

This “tariff exclusion process” is stacked against American steel-consuming businesses in several important ways. After exemption requests are filed with the department, steel producers are allowed to challenge those requests. Such an objection can not be challenged by the business that first filed the request. The criteria for determining whether a request is granted or denied is murky at best. Business owners have complained that simply getting a decision one way or the other can take months. And there is no way to appeal the department’s ruling.

Members of Congress have warned that the process lacks “basic due process and procedural fairness” and that it could be “abused for anticompetitive purposes.” After two years, the government’s own data suggests that’s exactly what has happened.

The steel tariffs were implemented under Section 232 of the Trade Expansion Act of 1962, which allows presidents to impose tariffs for national security reasons—not for purposes of economic protectionism. But protectionism appears to be a major factor in determining whether tariff exemptions are granted. American steelmakers appear to have significant influence over what is supposed to be an unbiased process.

Of course, the process was never really meant to be unbiased. Administration officials had a series of meetings with “interested parties” in the weeks before the tariff exclusion process was established, according to an October 2019 report filed by the Commerce Department’s inspector general. The report found no written summaries of more than 100 meetings and telephone calls that took place during March 2018.

“This gives the appearance that Department officials may not be impartial or transparent and are potentially making decisions based on evidence not contained in the official record for specific exclusion requests,” the report concluded. The inspector general called on department officials to improve the transparency of the tariff exclusion process and to implement a formal appeals process.

There is also a tremendous backlog—more than 40,000 exemption requests are currently “pending,” according to the Mercatus analysis of federal data. And the exemptions last for just one year, so even companies that do successfully navigate the cumbersome process are never really free from it.

American businesses that rely on imported steel may be breathing a small sigh of relief after President Donald Trump granted a pandemic-inspired three-month delay for some tariff payments. Still, the Mercatus Center’s analysis of the latest federal data—which includes exemption requests filed, denied, and approved through March 14—suggests that cronyism remains alive and well within the tariff bureaucracy.

The steel tariffs have done little to boost domestic steel production, and it may have contributed to job losses in the industry. But they did give birth to a protectionist racket.

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Trump’s Immigration Pause Won’t Outlast Him

Bloomberg columnist Noah Smith, an immigration advocate, let loose his inner pessimist on twitter this week and declared in a long thread that thanks to President Donald Trump and coronavirus, the “pro-immigration cause in America” is “dead” regardless of the outcome of the November election.

This is not because President Donald Trump’s anti-immigration message has won over American hearts and minds. Smith actually believes the pro-immigration side has won both intellectually and in the court of public opinion, given that 70 percent of Americans are currently pro-immigration. (Indeed, since Trump assumed office, there has been a seven-point increase in the number of Americans who believe that immigration levels should be increased.)

The trouble, Smith says, is that the anti-immigration minority is prepared to go to any lengths—even “destroy[ing] critical institutions”—to get its way. However, for the remaining 70 percent, the issue does not have the same “salience” and therefore it won’t expend as much political capital to stop restrictionists.

And this was before the coronavirus hit. After the economic devastation that the pandemic is wreaking, immigration will naturally stop and the political will to unravel Trump’s immigration restrictions will evaporate. “We’re in the Immigration Pause world now,” Smith declares. (His Bloomberg colleague, Tyler Cowen, the libertarianish George Mason University economist, echoed similar thoughts a week earlier, noting “immigration will largely shutdown” after this pandemic.)

This is exactly the kind of thing that ultra-restrictionists have been pushing for the last several decades. Should open-border libertarians crawl into a cave and assume the fetal position?

Not necessarily.

For starters (and this may come as a surprise to those familiar with Reason’s—and my—uncompromising advocacy of immigration), the crucial issue for libertarians isn’t immigration itself but unfettered freedom of movement. They are simply pro-choice. That means their interest is in tearing down physical walls and political barriers to human mobility, not ensuring any particular level of immigration. We want natural forces—the combination of “pull” factors in the host country and “push” factors in the home country —to regulate immigration rates, not central planners and bureaucrats. Immigration has always ebbed and flowed with the economy, and if a crashing economy makes America a relatively unattractive destination for immigrants, then so be it. America has had open borders with Puerto Rico since 1917 and there have been times when net immigration from that country has been zero and even negative. Should there be a loss of interest from every country, it’ll be a hit to America’s self-esteem, but nothing to fret over from the standpoint of libertarian immigration policy (although economic policy is a different matter).

So the crucial issue for libertarians is whether the panoply of restrictions enacted by Trump—many at the behest of his advisor Steven Miller—are here to stay. These restrictions represent a sustained assault on almost every aspect of America’s immigration program—humanitarian, economic, and family-based. But they were accomplished through executive and administrative action because Miller’s gambit to use the legalization of Dreamers to push Congress to slash and reform the immigration system did not work. Hence, whether these changes stick will depend very much on the outcome of the November elections, contra Smith and Cowen.

If Trump is reelected, all bets are off. Over the last four years, Miller has loaded key positions within the immigration bureaucracy with likeminded people, which means he’ll be able to hit the ground running in Trump’s second term.

But if Biden wins?

It is true that during times of economic distress, natives are much more prone to see the economy as a zero-sum game. On top of that, Volokh Conspiracy’s Ilya Somin noted in a personal exchange that liberals may use the pandemic to push social welfare measures and so might backburner immigration reform—just as President Barack Obama prioritized Obamacare after the financial meltdown instead of this issue.

However, there are also forces pushing in the other direction.

Trump’s inhumane immigration policies—snatching kids from moms without any plan to reunite them in the name of zero tolerance, warehousing asylum seekers in crowded and filthy camps in Mexico, deportation raids in Latino communities—have not just triggered widespread public disgust, but increased the “salience” of the issue for liberals and libertarians. Indeed, Democrats have never been more pro-immigration. Moreover, watching Trump push his radical agenda has emboldened and radicalized them. It was unimaginable pre-Trump that the left would push to “abolish ICE.” (That kind of thing usually was confined to the Libertarian Party platform). This does not mean that Biden will call off the border cops and let freedom of movement rip the minute he enters the White House, but it does mean the politics of immigration have fundamentally changed among Democrats from when President Barack Obama turned himself into the deporter-in-chief.

This was evident during the Democratic primaries given that former Rep. Beto O’ Rourke (D–Texas), of El Paso, explicitly ran on a campaign to tear down Trump’s wall. His rival, former mayor of San Antonio and Obama’s HUD Secretary Julian Castro, went a step further and demanded the decriminalization of border crossings, forcing Sen. Elizabeth Warren (D–Mass.) subsequently to embrace that position too. Even Sen. Bernie Sanders (D–Vt.) dialed backed his long-standing opposition to right-wing Koch-backed open borders as bad for American workers. Instead, he issued purple condemnations of Trump’s cruel policies and started issuing his usual bromides about stopping the exploitation of foreign workers by heartless employers. All of this forced Biden, the frictionless political weathervane, to apologize for the Obama administration’s deportation policies and pledge to develop a more humane plan. It’s not plausible that liberals will pull a complete switcheroo because of the coronavirus crisis.

Indeed, even if Biden doesn’t fully live up to all the expectations of liberal activists, there are some baseline expectations that he will ignore at his political peril.

Like these:

  • He will have to reinstate some kind of legal status for Dreamers—even if the Supreme Court upholds the Trump administration’s efforts to scrap DACA (Deferred Action Against Childhood Arrivals)—if not their parents.
  • The “Muslim” travel ban will end even if some coronavirus-related travel restrictions remain.
  • Trump cut America’s refugee quota from 110,000 under Obama to 18,000, and he isn’t even meeting that number because of the impossible vetting standards he has implemented. Those will end and the program will be restored. Ditto for asylum. Trump’s Remain in Mexico policy that pays Mexico to warehouse Central American migrants while their asylum claims are heard in America is a scandal and will end.
  • Trump’s public charge rule will be rolled back. The rule would deny green cards to legal immigrants or in other ways prevent them from upgrading their immigration status if they are below an income threshold and likely to collect public benefits.
  • With respect to employment-based immigration, it is telling that even in the 60-day immigration pause that Trump imposed in the wake of the pandemic exempted H-2A visas that American agriculture needs to hire migrant workers. Why? Because without this labor the country’s food supply chains would come to a grinding halt. And if Trump realizes that America needs these folks, there is no way that Biden won’t. This is especially the case if his post-pandemic welfare push creates even greater disincentives for Americans to take on backbreaking, low-paying jobs. So America can’t afford to turn away low-skilled workers.
  • One of the weirdest things about the Trump administration has been its animus against high-skilled H-1B immigrants. Miller has left no stone unturned to assault this program. This is the exact opposite of the consensus in the conservative policy establishment—which generally opposes low-skilled immigration because of its alleged deleterious fiscal impact but supports high-skilled immigration because it helps keep America’s global technological edge and has a positive fiscal impact. Given this conservative consensus and the massive demand from Democrats’ Silicon Valley backers for foreign techies, there is no way that a Biden presidency does not give high priority to unraveling all the red tape Miller has dispensed.

All this means that it is not unreasonable to expect that a Biden victory will mean an end to Trump’s immigration pause, virus or no virus. Whether Biden is able to meaningfully pull down the barriers and advance the cause of forcefully liberalizing immigration is a different issue. But there is every reason to hope that he will at least restore the status quo ante.

To be sure, restrictionists will fight back. But they will lose political traction the day Biden enters the White House and ascends the bully pulpit. The country is already appalled by much of what this administration has done. Trump was unusually zealous in using his megaphone to advance his restrictionist agenda and yet he swayed only his flock, not many other Americans. If Biden is only half as zealous in exposing the havoc wrought by Trump’s inhumane policies, he’ll be able to undo a good chunk of the damage.

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Much of the FBI’s Treatment of Mike Flynn Was Business as Usual, and That’s the Scandal

Michael Flynn, a retired Army lieutenant general and the former national security adviser to President Donald Trump, is back in the news after his attorneys released documents purporting to show that FBI officials considered trying to get Flynn to lie in order to prosecute him or get him fired. Flynn resigned in February 2017. In December 2017, he pled guilty to charges that he intentionally lied to the FBI about his connections and communications with a Russian ambassador.

The documents, released by Flynn’s attorneys on Wednesday, show handwritten notes that discuss strategies for interviewing Flynn. One note asks “What is our goal? Truth/admission or to get him to lie so we can prosecute him or get him fired?” Fox News reports that the notes were written by Bill Priestap, the former head of FBI counterintelligence.

Fox highlights that question in its reporting but also contextualizes it: This document appears to show the author (again, Fox reports it is Priestap, but that has not been confirmed by the FBI or the Justice Department) questioning the tactic and suggesting that the FBI show Flynn the evidence against him rather than trick him into a lie. The author of the FBI document worries that “if we’re seen as playing games, [White House] will be furious.” At the end of the list, the author wrote, “protect our institution by not playing games.”

Much of that context is lost in an online uproar over a supposed “perjury trap” meant to bring down Trump by first bringing down Flynn. Whether or not there were individuals or factions within the agency that wanted to attack Trump, what the FBI did to Flynn is normal FBI behavior for interviewing suspects. They’ve been doing it for decades. (Remember Martha Stewart?)

This is not a defense of the FBI. What the agency did to Flynn was wrong, not because he worked for Trump, but because it is wrong to induce an otherwise not-guilty person to break the law. And it’s something FBI interviewers do regularly so that they can use their dishonesty as leverage when there’s little evidence of actual criminal behavior. Ken “Popehat” White, Reason contributing editor and a former federal prosecutor who is now a defense attorney, has written extensively about the FBI’s tactic of luring suspects into lies. After Flynn pled guilty, White used his plea deal to explain precisely why no one should sit down for an interview with FBI agents without extensive preparation.

On Wednesday, White tweeted out a useful thread explaining precisely how the FBI gets away with this and how federal laws could be reformed to eradicate the practice. Federal statute 18 USC 1001 makes it a crime to lie to the feds on a “material” matter, even if the FBI already knows the truth, aren’t misled, and the lie doesn’t affect the investigation. This incentivizes the FBI to play these games in the first place, to try to trick suspects into a lie that could be used against them. White argues that if people truly care about these tactics, they should lobby Congress to change the federal statute that makes the practice legal.

Trump appears ready to do his part in getting rid of the practice:

Framing what happened to Flynn primarily as a “deep state” conspiracy to take down Trump obscures the reality that this is a routine and completely legal FBI practice that will continue unless there are serious statutory reforms.

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New York Paid $69 Million to a Shady Vendor for Ventilators That Were Never Delivered

Neither the sudden demand for new medical equipment nor a flood of new funding to purchase it has magically made government bureaucracies more competent stewards of taxpayer dollars.

Perhaps the best example of this is the New York Department of Health agreeing to purchase ventilators from a Silicon Valley vendor whose only qualification appears to be a Twitter reply to President Donald Trump. The ventilators never showed up.

As BuzzFeed first reported, New York paid Silicon Valley-based electrical engineer Yaron Oren-Pines $69.1 million for 1,450 ventilators, or about three times the pre-crisis, per-unit retail price for a high-end model.

Oren-Pines had replied to a March 27 tweet from Trump urging car manufacturer General Motors to start making ventilators at its “stupidly abandoned” Lordstown, Ohio plant, and for Ford to “GET GOING ON VENTILATORS, FAST!!!” In his reply, Oren-Pines said he could supply needed ventilators and asked that someone call him.

The Health Department inked the $69.1 million contract with him three days later. An anonymous state official told BuzzFeed that the White House’s coronavirus taskforce directly recommended Oren-Pines, who reportedly has no background in medical supply, but had worked at a string of Silicon Valley tech companies, including Google.

The White House told BuzzFeed it had no knowledge of the contract.

After receiving none of the ventilators it paid for, New York terminated its contract with Oren-Pines. An official told Buzzfeed that it had recovered “the bulk” of the money it had paid him. Despite projections suggesting otherwise, New York was able to manage its first peak of COVID-19 cases without the ventilators Oren-Pines failed to deliver.

The federal government has also signed questionable deals with suspicious suppliers. Earlier in April, The Wall Street Journal reported on how federal departments have signed a string of contracts for medical supplies with vendors who have little experience in that market, and in at least one case, are being sued for fraud.

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Much of the FBI’s Treatment of Mike Flynn Was Business as Usual, and That’s the Scandal

Michael Flynn, a retired Army lieutenant general and the former national security adviser to President Donald Trump, is back in the news after his attorneys released documents purporting to show that FBI officials considered trying to get Flynn to lie in order to prosecute him or get him fired. Flynn resigned in February 2017. In December 2017, he pled guilty to charges that he intentionally lied to the FBI about his connections and communications with a Russian ambassador.

The documents, released by Flynn’s attorneys on Wednesday, show handwritten notes that discuss strategies for interviewing Flynn. One note asks “What is our goal? Truth/admission or to get him to lie so we can prosecute him or get him fired?” Fox News reports that the notes were written by Bill Priestap, the former head of FBI counterintelligence.

Fox highlights that question in its reporting but also contextualizes it: This document appears to show the author (again, Fox reports it is Priestap, but that has not been confirmed by the FBI or the Justice Department) questioning the tactic and suggesting that the FBI show Flynn the evidence against him rather than trick him into a lie. The author of the FBI document worries that “if we’re seen as playing games, [White House] will be furious.” At the end of the list, the author wrote, “protect our institution by not playing games.”

Much of that context is lost in an online uproar over a supposed “perjury trap” meant to bring down Trump by first bringing down Flynn. Whether or not there were individuals or factions within the agency that wanted to attack Trump, what the FBI did to Flynn is normal FBI behavior for interviewing suspects. They’ve been doing it for decades. (Remember Martha Stewart?)

This is not a defense of the FBI. What the agency did to Flynn was wrong, not because he worked for Trump, but because it is wrong to induce an otherwise not-guilty person to break the law. And it’s something FBI interviewers do regularly so that they can use their dishonesty as leverage when there’s little evidence of actual criminal behavior. Ken “Popehat” White, Reason contributing editor and a former federal prosecutor who is now a defense attorney, has written extensively about the FBI’s tactic of luring suspects into lies. After Flynn pled guilty, White used his plea deal to explain precisely why no one should sit down for an interview with FBI agents without extensive preparation.

On Wednesday, White tweeted out a useful thread explaining precisely how the FBI gets away with this and how federal laws could be reformed to eradicate the practice. Federal statute 18 USC 1001 makes it a crime to lie to the feds on a “material” matter, even if the FBI already knows the truth, aren’t misled, and the lie doesn’t affect the investigation. This incentivizes the FBI to play these games in the first place, to try to trick suspects into a lie that could be used against them. White argues that if people truly care about these tactics, they should lobby Congress to change the federal statute that makes the practice legal.

Trump appears ready to do his part in getting rid of the practice:

Framing what happened to Flynn primarily as a “deep state” conspiracy to take down Trump obscures the reality that this is a routine and completely legal FBI practice that will continue unless there are serious statutory reforms.

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New York Paid $69 Million to a Shady Vendor for Ventilators That Were Never Delivered

Neither the sudden demand for new medical equipment nor a flood of new funding to purchase it has magically made government bureaucracies more competent stewards of taxpayer dollars.

Perhaps the best example of this is the New York Department of Health agreeing to purchase ventilators from a Silicon Valley vendor whose only qualification appears to be a Twitter reply to President Donald Trump. The ventilators never showed up.

As BuzzFeed first reported, New York paid Silicon Valley-based electrical engineer Yaron Oren-Pines $69.1 million for 1,450 ventilators, or about three times the pre-crisis, per-unit retail price for a high-end model.

Oren-Pines had replied to a March 27 tweet from Trump urging car manufacturer General Motors to start making ventilators at its “stupidly abandoned” Lordstown, Ohio plant, and for Ford to “GET GOING ON VENTILATORS, FAST!!!” In his reply, Oren-Pines said he could supply needed ventilators and asked that someone call him.

The Health Department inked the $69.1 million contract with him three days later. An anonymous state official told BuzzFeed that the White House’s coronavirus taskforce directly recommended Oren-Pines, who reportedly has no background in medical supply, but had worked at a string of Silicon Valley tech companies, including Google.

The White House told BuzzFeed it had no knowledge of the contract.

After receiving none of the ventilators it paid for, New York terminated its contract with Oren-Pines. An official told Buzzfeed that it had recovered “the bulk” of the money it had paid him. Despite projections suggesting otherwise, New York was able to manage its first peak of COVID-19 cases without the ventilators Oren-Pines failed to deliver.

The federal government has also signed questionable deals with suspicious suppliers. Earlier in April, The Wall Street Journal reported on how federal departments have signed a string of contracts for medical supplies with vendors who have little experience in that market, and in at least one case, are being sued for fraud.

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Russian Prime Minister Tests Positive For Coronavirus

Russian Prime Minister Tests Positive For Coronavirus

Russian Prime Minister Mikhail Mishustin has tested positive for COVID-19, according to a report in Russian newswire Interfax.

Yesterday, Russia saw its total number of confirmed cases eclipse 100k, placing Russia in the ranks of the 10 biggest outbreaks around the world (at least going by the number of ‘confirmed’ cases)

The PM has told Russian President Vladimir Putin, who delivered a televised address earlier this week about the country’s intensifying outbreak, which is centered around the capital of Moscow, that he will isolate until he tests negative, in accordance with the standard procedures.

First Deputy Prime Minister Andrei Belousov will fill in for Mishustin while he recovers.

Mishustin, 54, was named prime minister in January, just as the virus was beginning to spread beyond China, after Putin pushed out his longtime deputy and former “tandem-ocracy” leader Dmitry Medvedev after a series of gaffes and corruption scandals.

It’s not clear how Mishustin acquired the virus, or whether he might have exposed other high-ranking Russian officials, possibly even Putin, though the president has appeared to keep his distance since the outbreak began.


Tyler Durden

Thu, 04/30/2020 – 13:08

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Tesla Slides After Einhorn Questions “Suspect” Accounts Receivable, Income Statement

Tesla Slides After Einhorn Questions “Suspect” Accounts Receivable, Income Statement

It was only last November that David Einhorn and Elon Musk took their longstanding disagreements over Tesla’s financial viability to Twitter, launching a public feud between the two public icons which everyone could enjoy in real-time. Now, Einhorn is back for round two.

Appending a note to Elon Musk under a tweet he had first sent to the CEO back in November of 2019, Einhorn weighed in with questions about yesterday’s Tesla earnings, where he again questioned Tesla’s Accounts Receivable, incidentally the same question we highlighted in yesterday’s post discussing Tesla Q1 earnings, namely how it is possible that the accounts receivable for the company was still a whopping $1.3 billion.”

Here’s Einhorn’s version:

I remain curious about your accounts receivable. Tesla’s claim for why there are so many for a product where the customers pay up front, was that sales are crazily concentrated in the last days of the month – so much so that it matters if the month ends on a weekend.”

He continued, using Musk’s previous arguments against him:

“This quarter ended on a Tuesday. And, by all accounts sales were not back-end loaded as most of your market was shut-down at the end of March. Yet, Days Sales Outstanding rose from 18 days to 21 days. Can you or Zack explain?”

Einhorn then focused on Tesla’s margin numbers, just as we did yesterday.

“I have another question,” he wrote.

“This quarter your production was lower and split over two factories, affecting cost absorption particularly in Fremont. Your average selling price was lower. Your mix had fewer high margin Model S/X. You ramped up Model Y. Both factories were interrupted driving up costs.”

“And, though you didn’t discuss it, currency should have hit your margin by 2-3% compared to last quarter. All of these factors appear to be headwinds to your auto gross margin (excluding Regulatory credit sales) – which barely budged,” he continued.

“Can you or Zack explain?” he asked again.

“Otherwise, I will continue to be left wondering if not only your accounts receivable are suspect, but your income statement as well.”

The assault from Einhorn comes at an interesting time for Tesla. Not only has the issue of Tesla’s potentially fraudulent accounts receivable been percolating for the past three quarters, but as we also wrote earlier today, Musk is going to be due a large compensation award based on Tesla’s rocketing stock price, even as the company remains largely shut down.

Despite the issues of months past, including shutting down Fremont for the coronavirus, laying off hundreds of contractors and staff and putting himself on the hook for his own board’s D&O insurance, Elon Musk still seems set to cash in on a ~$845 million payday in the form of 1.69 million stock options at $350 per share.

In any case, since this is not the first time Einhorn has questioned Tesla’s AR without getting an answer, we doubt that an answer will be forthcoming this time either, even if the stock price – which slumped after the Einhorn tweet, is demanding some response.


Tyler Durden

Thu, 04/30/2020 – 12:35

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Will Airbnb’s Implosion Trigger A Housing Bust?

Will Airbnb’s Implosion Trigger A Housing Bust?

Authored by John Rubino via DollarCollapse.com,

It seemed like such a good idea at the time.

Airbnbs were the next wave in hospitality, taking market share from hotels and motels and backed by a tech network that made running a virtual bed and breakfast fun and easy.

So you borrow a bunch of money, buy a couple of houses, and put them in the system.

At first it works.

Your properties fill up, your reviews are great, and your projected cash flow is twice what you would receive for a long-term rental.

You – along with thousands of others – are thinking “real estate empire.”

Then out of nowhere comes a pandemic(!) and the sharing economy suddenly looks patently absurd.

Ride in other people’s cars? No thank you.

Sleep in other people’s beds? Gross!

Airbnb bookings fall off a cliff, while Airbnb itself reports massive, potentially company-threatening losses.


And just like that, your cash flow turns into cash burn. Big time.

Now what do you do?

You already have a house of your own so you can’t move into one of your rentals. You borrowed to buy your properties so you have big monthly payments. And even with the government’s mortgage forbearance program, you’ve got maintenance and taxes to cover, and little income with which to do it. 

You kind of have to sell, if not right now pretty soon. But to whom? See US pending home sales sank 20.8% in March. Meanwhile, big price reductions are becoming the norm on Zillow. The stuff you bought near the peak of the cycle may now be worth 20% less – if you’re lucky.

You, in short, are about to learn the definition of “illiquid.”

Another Housing Bust?

Now let’s dial the view back to the housing market as a whole. As recently as February, a lot of regional markets had what realtors defined as shortages of homes for sale, which going forward provides a cushion against falling demand.

But that was with thousands of would-be Donald Trumps snapping up Airbnb-worthy rentals in hot markets. Remove that future demand (because who in their right mind is buying Airbnb rentals today?) and add the new supply coming from people who have no choice but to sell, and the supply/demand calculus might change dramatically. We’ll see.

Here’s what happened to prices in the last housing recession:


Tyler Durden

Thu, 04/30/2020 – 12:20

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