It WILL get worse…

  • The end
  • Spot the difference
  • At some point…

Bad day yesterday. Bad day today…so far.

Even so, the market remains close to a multi-year high.

The combined losses are tiny. Again, so far

But as far as we’re concerned, that won’t last. When the losses come, they’ll be big…bigger than 2008.

That’s why we’re beginning to make plans to do something about it.

We’re still at the early stages. But the plan is to take all the doomy-gloomy warnings we write to you about each day and week, and turn that into direct actionable advice.

But it will come with a twist. We’ll explain more soon. Until then…


Overnight, the Dow Jones Industrial Average gained 8.01 points, or 0.04%.

The S&P 500 fell 3.04 points, or 0.13%.

In Europe, the Euro Stoxx 50 index rose 8.04 points, or 0.22%. Meanwhile, the FTSE 100 fell 0.21%, and Germany’s DAX index gained 0.16%.

In Asian markets, Japan’s Nikkei 225 index remains closed; today it’s for Greenery Day. China’s CSI 300 is down 0.02%.

In Australia, the S&P/ASX 200 is down 33.64 points, or 0.57%.

On the commodities markets, West Texas Intermediate crude oil is US$47.72 per barrel. Brent crude is US$50.72 per barrel.

Gold is trading for US$1,239.87 (AU$1,670.70) per troy ounce. Silver is US$16.58 (AU$22.34) per troy ounce.

The Aussie dollar is worth 74.21 US cents.

The end

The slow death of the mainstream media continues.

Bloomberg headlines, ‘Fairfax Media Group Revenue Down 6% Y/Y in First 17 Weeks of 2H’.

In English, it means that the mainstream media is toast. It’s the proverbial ‘game over’.

You can see evidence of that everywhere, even on a local level. The newsagent at our local shopping mall has moved tenancies within the mall to an area that’s less than one-quarter the size of its previous space.

People aren’t buying newspapers anymore, and haven’t been for years. People aren’t buying magazines anymore, and haven’t been for years.

Of course, if it were just the lost revenue from newspapers and magazines, things probably wouldn’t be so bad. But there’s the lost revenue from impulse buys, and other transactions.

In reality, they should probably junk the whole newsagency idea and replace it with a kiosk to sell lotto tickets. But that’s beside the point.

You only have to look at Fairfax Media Ltd’s [ASX:FXJ] income statement to see the scale of the poor performance.

The Bloomberg report goes on to trumpet the wonderful gains in the company’s online business unit. As if, in the long run, that’s going to make a blind bit of difference.

It’s not.

Last financial year, Fairfax’s revenue was $1.8 billion. That’s down from $2.9 billion in 2008.

In 2008, Fairfax actually made a profit of $369 million. Last year, it made a loss of $893 million.

The billion-dollar write-down of assets played a big role in that loss. We wouldn’t be surprised if further write-downs take place. The company still has goodwill of $323 million on the books and other intangible assets of $430 million.

For instance, Fairfax still assigns $241 million to its newspaper mastheads, such as The Age and Sydney Morning Herald.

We won’t claim to be a branding expert but, personally, we’d value both at zero. We doubt that, in the event of a fire sale, anyone in their right mind would pay close to that.

In the digital age, where news blogs and websites crop up by the day, and which can attract tens or hundreds of thousands of readers within weeks, there’s no need to pay $241 million for soon-to-be defunct newspaper names.

Take The Age’s claims about its online readership. It claims a unique monthly audience of 2.3 million people. That’s fine. But how many of those people actually generate any revenue for Fairfax?

We doubt if it’s more than 5–10%…and that’s being generous.

So what would a buyer of those mastheads and the business actually be buying? Certainly not something that’s worth $241 million. Not when a digital media business could pay just a fraction of that amount to develop its own and more targeted online presence.

Of course, this comes after the news from Ten Network Holdings Ltd [ASX:TEN], which last week stated the company may not be able to ‘continue as a going concern’ if it can’t get new financial backing.

The Ten Network has always been the third wheel among the three commercial networks. But its pitiful state shows you just how much the traditional media is dying.

The share price currently stands at just 23 cents. Its market cap is only $84 million.

As the following chart shows, that’s a far cry from the glory days, not so long ago, when its shares traded at the equivalent of $33 (split adjusted, white line) and its market capitalisation (green line) exceeded $2.5 billion:

chart image

Source: Bloomberg
Click to enlarge

The company has made a loss for five straight years. In its current form, it’s unlikely to survive. If it does go under, it won’t be the last in the old media sector or elsewhere when the next recession bites.

Spot the difference

We continue our tales of woe with our arch nemesis, Tesla Inc. [NASDAQ:TSLA]. As we pre-empted yesterday, the company was set to release its latest quarterly results this morning.

And so it did.

Not long after, we received this comment by email from colleague and fellow Tesla-hater, Sam Volkering:

Net loss is more. Debt is $1bn more. Customer deposits are lower. Also they make note that people are getting confused about the Model 3. Apparently people think it’s the updated, newer version of the Model S. No, no. It’s cheaper in every sense of the word. Me thinks there’s going to be a lot of disappointed Model 3 owners, and deposits that pull out last minute. You don’t add that kind of info in a quarterly unless it’s a substantial problem.

Tesla did beat revenue estimates. Hats off. But its losses were bigger than expected too. Hats back on again.

For the quarter, revenue came in at US$2.7 billion. That’s more than the same quarter last year, when it generated US$1.1 billion.

But then there are the losses. The growing losses. This quarter, US$330-million worth of losses. The same quarter last year, ‘just’ US$282 million.

As a result, the share price fell 2.5% in after-hours trading in the US.

But as Sam points out, it’s not just the numbers that stink. The business as a whole stinks. We, too, were amused by the admission that many folks don’t seem to understand that the Model 3 isn’t the same as the Model S.

And if they read the statement from Tesla, even those potential Model 3 buyers who knew what they were getting may be less inclined to go through with the purchase. To say Tesla doesn’t exactly paint a rosy picture of the Model 3 is an understatement.

The following is a direct quote from Tesla’s investor update:

We have seen a belief among some that Model 3 is the newest and more advanced generation of Model S. This is not correct. Model S will always have more range, more acceleration, more power, more passenger cargo room, more displays (two), and more customisation choices…

So, just why would you buy a Tesla Model 3?


Our thoughts exactly.

But even more than that, we were stumped by a comment from chairman Elon Musk. Now, we’ve often accused Tesla and Musk of being little more than a PR machine.

Maybe they’ve listened…and perhaps swung too far the other way. Asked about the chances of Tesla meeting its production targets, Musk answered:

We’ve gone to great pains with the Model 3 to design it for manufacturing, and to not have all sorts of bells and whistles and special features that, like for example, with Model X, Model X became kind of like a technology bandwagon of every cool thing we could imagine all at once.

Wow, ‘design it for manufacturing’! That’s the kind of revolutionary attitude the car industry needs. We bet Ford, General Motors, BMW and Mercedes execs are cursing themselves they didn’t think of that.

But again, why would anyone want to buy the Model 3?

Looking at the specs of the Model X, which apparently has loads of bells and whistles, we’re wondering what Tesla will omit from the Model 3.

Perhaps the LED headlamps. So high tech.

Power-folding, heated side mirrors. No other car offers those…oh wait.

Or what about…wait for it…automatic keyless entry. Talk about Jetsons-style technology. They could easily withhold that without anyone noticing. Keyless entry? Pie-in-the-sky tech, we say!

When we read the comments from Tesla, we have a simple response. Tesla is going cheaper on price, and cheaper on quality.

The trouble is, the US$35,000 price tag isn’t that cheap. It’s still a premium car, which, when compared to comparable BMWs, Mercedes, or other premium cars, will fall well short.

Anyway, perhaps it’s too soon to say the Tesla dream is over, but our bet is that the closer Tesla gets to production, more and more prospective customers will get cold feet about going through with the purchase and will ask for their money back.

Despite the price rise, we still like Tesla as a short. We may have called it too early, but we still say that, sooner rather than later, the Tesla dream run will end.

At some point…

One final thing on the Tesla investor statement. We couldn’t help but laugh when reading this gem on non-specificity:

Simultaneously, preparations at our production facilities are on track to support the ramp [up] of Model 3 production to 5,000 vehicles per week at some point in 2017, and to 10,000 vehicles per week at some point in 2018.

Could they be a little more precise? Clearly not.