The rules of campaigning

  • Car buyer’s to ‘strike’
  • None of it matters
  • Another reason to not like (aka, hate) Tesla
  • ‘Tiny stocks’ here TOMORROW (Look out!)

Rule one of political campaigning: Don’t allow yourself to be photographed in front of a sign saying ‘Exit’. Especially if you’re the incumbent president or prime minister, and the odds are on you losing the election.

The second rule of political campaigning: Don’t allow yourself to be photographed in front of a sign where the photographer can isolate a few key letters in order to craft a desired message.

The UK Labour Party leader, Jeremy Corbyn, has learnt this second rule today, thanks to The Sun newspaper:



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Source: The Sun
Click to enlarge


In full, the sign read, ‘Vote Labour to Scrap Tuition Fees’.

To stand in front of such a sign was clearly a schoolboy error.

Markets

Overnight, the Dow Jones Industrial Average gained 8.84 points, or 0.04%.

The S&P 500 closed up 0.65 points, or 0.03%.

In Europe, the Euro Stoxx 50 ended the day up 15.04 points, or 0.42%. Meanwhile, the FTSE 100 fell 0.38%, and Germany’s DAX index rose 0.32%.

In Asian markets, Japan’s Nikkei 225 index is up 138.67 points, or 0.7%. China’s CSI 300 is up 0.42%.

In Australia, the S&P/ASX 200 is up 10.7 points, or 0.19%.

On the commodities markets, West Texas Intermediate crude oil is US$45.64 per barrel. Brent crude is US$47.86 per barrel.

Gold is trading for US$1,274.88 (AU$1,692.14) per troy ounce. Silver is US$17.35 (AU$23.03) per troy ounce.

The Aussie dollar is worth 75.34 US cents.

Front page

That wasn’t the only gem from The Sun. Its front page led with the following image:



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Source: The Sun
Click to enlarge


Geddit? His name’s Corbyn…which The Sun has pun-tastically changed to Cor-bin.

This is why we have a golden rule at Port Phillip Publishing: no puns, except in exceptional circumstances.

Car buyer’s to ‘strike’

In other matters, Bloomberg reports:

Carmakers and auto parts suppliers traded weaker on Thursday after Morgan Stanley warned of an “unprecedented buyer’s strike,” and lowered its U.S. auto sales forecast by millions of units for each year through 2020.

The U.S. auto industry seems to have hit a point of diminishing returns, Morgan Stanley’s auto analyst Adam Jonas writes in a note to clients, and the tactics required to attract new customers are now putting even more pressure on the used-car market that is already suffering from a steep erosion in values. Jonas now expects the 2017 U.S. annualized automotive sales rate, adjusted for seasonal trends, to reach 17.3 million, down from a prior expectation of 18.3 million, as last week’s May sales results were insufficient to support the prior estimates.

Ooh, is that good news or bad news for our arch nemesis, Tesla Inc [NASDAQ:TSLA]?

‘It’s bad news’, your editor bellows.

‘It’s good news’, investors bellow louder, as the stock hits another all-time record high:



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Source: Google Finance
Click to enlarge


The Tesla stock price is now up over 72% so far this year.

This supposed buyers’ strike, is kicking in just as Tesla is about to release its brand spanking new Model 3. The first models are due to roll off the production line next month. It’s clear the stock price has risen in anticipation of this.

So, what could this mean for Tesla and the car industry in general?

Clearly, it’s not going to be great news. But even we will concede that any car buyers strike may not hurt Tesla as much as other car companies. That’s no doubt what Tesla and its investors are banking on anyway.

Now, that doesn’t mean it will be plain sailing, but if we’ve learnt anything over the past 10 years, it’s that one type of demographic has done quite well from money-printing and low interest rates. It also happens to be the demographic that’s most likely to buy a Tesla car.

No, don’t worry, we haven’t done the switcheroo. We’re not suddenly flipping over to the bullish side. We’re simply saying that demographics do matter — in anything.

That said, customers are only one half of the ledger. There are the outgoings as well.

And for that, we still find it hard to look past the fact that the biggest booming companies right now, are the same companies that have benefited greatly from record low interest rates. We’re talking about Tesla, and companies like Amazon.com Inc [NASDAQ:AMZN].

With its longer history of public financial reports, you can’t help but notice that Amazon.com found it incredibly hard to grow its business when interest rates were much higher. At the same time, the company found it hard to make a profit, let alone make a consistent profit.

Of course, you could argue that it was just a case of Amazon.com hanging around long enough for it to benefit from changing consumer habits. When the change came, Amazon.com was there to make the most of it.

And, when the world’s economy turns down the next time, perhaps then Amazon.com will be big enough to weather that storm. Or not.

For there is another factor to take into account when it comes to Amazon.com. That’s remembering that it’s not just an online store. It’s a web services giant, and…a business lender too.

As TheStreet.com reports:

Amazon.com said Thursday that its Amazon Lending service has surpassed $3 billion in loans to small businesses since it was launch in 2011.

In the last 12 months alone the eCommerce giant has loaned over $1 billion to small businesses. Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction.

It certainly is a plus. But, as every finance student knows, leverage is a double-edged sword. It’s great to be a lender when credit is expanding, interest rates are low, business is booming, and borrowers can repay their debts.

However, when that sword flips…when credit is contracting…when interest rates are even slightly higher…when business isn’t booming…and when borrowers can’t repay their debts, that’s when trouble strikes.

It’s trouble, because the risk/reward set-up for lenders is asymmetric. By that we mean, the most a lender can make from lending, is the interest rate charged. If the lender lends $100 at an interest rate of 5% for one year, the most the lender will make from the deal is $5.

As we say, when business is booming, that’s great. It’s about as close as money for old rope as you can get.

But here comes the asymmetry. While the most the lender can make is 5% (in this example), the lender is also at risk of losing 100% of the money loaned if the borrower can’t repay.

That may not be a high risk now. But who’s to say that a year, or two years from now that businesses won’t find it harder to repay debts?

It goes further than that. When interest rates are low, desperate borrowers are perhaps more likely to refinance, and even borrow more than they otherwise would, hoping they can borrow their way out of trouble.

As for the lender, well, low interest rates means that it needs to lend more if it wants to generate the same revenue and profit as before. That’s just common sense. If the lender can make $5 per $100 when interest rates are 5%, it needs to lend $250 at 2% in order to make the same $5.

No one can tell us that doesn’t pose a significant risk if the markets (as we expect them to) eventually turn south.

You only have to re-read the first sentence of the second paragraph we quoted above, to see how Amazon.com as a lender, has responded to continued low interest rates, ‘In the last 12 months alone the eCommerce giant has loaned over $1 billion to small businesses.

The loan book has grown by around 50% in a year. Trouble?

Remember, Amazon.com established the loan business in 2011. So it hasn’t yet lived through a financial meltdown, or even a recession. A $3 billion loan book may not seem like much. But it’s certainly worth wondering about the credit quality of the borrowers, and their capacity to repay their debts if a recession does hit.

As always, we will watch very keenly indeed.

None of it matters

Somewhere, just out of earshot, controversial economist, Phillip J Anderson is screaming, ‘None of it matters.’

Phil will tell you that you can ruminate and wonder about the markets and debt levels and anything else you like…but none of it matters. The only thing that matters is The Grand Cycle, and where we are in that cycle right now.

To find out, you may want to go here to learn more.

Another reason to not like (aka, hate) Tesla

If we didn’t already dislike Tesla, then the naming convention for its cars is reason enough.

See if you can figure it out.

Tesla’s first car, and its most popular to date is the Model S.

It then developed an SUV car, which was the Model X.

The next due-to-be-released car is the smaller, Model 3.

Finally, Tesla has revealed plans to launch a sedan/SUV crossover car, which will be the Model Y.

Can you work it out? There’s a bit of a trick in there. Tesla had wanted to launch a Model E, but that was thwarted by Ford Motor Company [NYSE:F].

So yes, there you have it, the model naming convention that Tesla is using for its cars is all based on creating the acronym, S3XY. (If you’re a bit slow, and still haven’t got it, SEXY.)

Don’t get us wrong. It’s not that it offends us, but rather, it annoys us. We guess it’s all part of Tesla’s 24/7 PR operation.

‘Tiny stocks’ here TOMORROW (Look out!)

Yesterday, the Aussie S&P/ASX 200 index gained just 0.2%.

Big stocks like Commonwealth Bank of Australia [ASX:CBA] gained 0.7%.

BHP Billiton Ltd [ASX:BHP] added 0.52%.

Telstra Corp Ltd [ASX:TLS] fell 1.35%.

Wesfarmers Ltd [ASX:WES] fell 0.2%.

And Fortescue Metals Group Ltd [ASX:FMG] lost 0.42%.

In short, not a great day for big, blue-chip stocks.

Meanwhile, as all that was going on, at the other end of the market, this was happening:



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Source: CMC Markets Stockbroking
Click to enlarge


10 ASX-listed stocks made gains ranging from 25% to 100%.

Remember, on a day when big blue-chips barely eked out a 0.2% gain.

But what you’ll notice about these stocks is that they aren’t blue chips. Nowhere near it. Just in terms of their share prices, the priciest now trades for less than 11 cents. The rest trade for 5.6 cents or less.

Heck, seven of them trade for less than one cent.

This truly is the tiny end of the market…which is what makes these stocks so exciting, and, so potentially lucrative.

That’s why I’m re-opening the doors for one last time in 2017 to our most speculative, exciting, and breathtaking investment advisory, Microcap Trader.

Seriously, we have to enforce a hard ‘cap’ on members of this service, due to the crazily speculative nature of the stock recommendations. These things can fly, and plummet, and fly again…all in the space of a single day.

For the aggressive (and some would say, bonkers) speculator, it’s just the kind of investing they’re after. If that’s you, look out in your email inbox tomorrow. The doors will officially re-open, likely for no more than 72 hours, to our riskiest and most exciting speculating and investment service.

But be aware, spaces are strictly limited. There are less than 50 spots available. When we opened the doors to accept members six weeks ago, we had to slam them shut after just three days. But, with a service like this, we always find that a few folks take advantage of our generous refund policy, and ask for their money back.

That’s fine. Many of those folks genuinely wanted to check it out and found that it really was too risky for them. But we also have serial tyre-kickers, time-wasters, and for want of a better term, ‘thieves’ who always intend to ask for their money back to begin with. They just want to get the stock picks for free.

That’s something we’ll have to think about combatting in the future, if it keeps happening. But for now, the doors to Microcap Trader will reopen tomorrow morning. If you missed out the last time, tomorrow’s your chance. It will be the last chance to join Microcap Trader for at least another year.

So, look out. The doors reopen at 9am AEST tomorrow.

Cheers,
Kris