EconMatters

Mobile Phones: Why I Ditched Verizon and Will Never Deal With Gazelle

2020-10-17T18:44:00.027-05:00

It has been a while since I last wrote something regarding my personal shopping experiences. Today, I am going to share with you a recent odyssey I went through in replacing two cell phones and the respective carrier services.

I had two Samsung Galaxy S7s that I purchased new from Verizon in 2016. As you can imagine, with the speed of technological advancement, in four years' time, the latest model from the Galaxy line is now the S20. I am a firm believer that everyone needs to incorporate new technology into their daily life as a part of continuous learning and self-improvement. In addition, I wanted a bigger mobile screen for more enjoyable reading and entertainment.

After some research, I decided on the Galaxy Note 20. Naturally, since I have been with Verizon even before getting the two S7s, Verizon was my first stop. I reckoned I had some leverage: being a long-time customer and the current weakening economic environment, i.e., depressed corporate earnings and reduced consumer spending due to the ongoing pandemic.

I am not a high data user; my existing two lines were sharing a 2GB data plan and my monthly bill is around $80 (more on that later). My goal was to keep a similar shared data rate plan, but upgrade to two new Note 20s.

The "Verizon Deal"

I headed to Verizon, and as expected, the parking lot and the store were almost empty. The "deal" quoted to me was $400 off on one phone, but there's a catch: one of my phones has to have a new number, and both lines need sign up for the Unlimited Plan for 24 months at $140/month for two lines, which would more than double my monthly bill. If I would like to keep my cheaper shared plan, I need to pay full price for both phones, or about $2,200 for two Note 20s.

Obviously, Verizon's "promotion" is to get people sign up for new lines (to boost company's performance metrics for the sake of shareholders) and its higher-priced unlimited plan (a total waste of money for many mobile users). I quickly did the math in my head, and concluded it was an unbelievably bad deal for any consumers.

I questioned the Verizon person how his company could come up with such an awful marketing campaign in today's economic environment. The response was the most uninformed I have ever encountered in the business and professional world. I was told there were plenty of Verizon customers lapping up their "deals" as many were receiving unemployment and government stimulus payments. I totally disagreed with this short-sighted view, but it did sound like the thought process of an average American consumer. Bottom line is for me to take it or leave it. I left.

Xfinity Mobile, Who Knew?

Then, I thought I should pay T-Mobile a visit. After all, T-Mobile is Verizon's biggest competitor after acquiring Sprint. I drove past a Xfinity center on the way, when I remembered a Xfinity Mobile commercial. I have Comcast/Xfinity for cable and Wi-fi. There was a short waiting line, but I was quickly greeted by a specialist.

The Xfinity offer: Two Notes 20 Ultra 5Gs, $400 discount PER line. I get to keep my numbers with a 3GB shared plan at $30/month for two lines. It is a 24-month commitment, the same as Verizon. My monthly bill will be $105, only $25 more than my Verizon bill.

So, for an extra $25 a month for the next 24 months, I get to enjoy two brand new latest mobile technology phones with 1GB more data. The most ironic part is that Xfinity rents its mobile network/towers from Verizon. Then the specialist also reviewed my existing account yielding further savings on my monthly cable/Wi-Fi bill.

Very Different Rate Plan Talks

It is often confusing when comparing mobile rate plans and carriers. Here is something I picked up by talking to the two carriers back to back. Verizon quotes its rate plan on a per line basis (even with shared plans), excluding a per line "base fee". That is why Verizon mobile bills usually end up a lot higher than what was advertised or quoted. Xfinity is on an all-inclusive basis. That is, in my case, for example, when Xfinity quoted me 3GB shared plan at $30/month, it is all inclusive for two lines, and there is no "base fee". Now you see just by comparing the two rate plans I'm interested in, Verizon charges more than twice than Xfinity Mobile.

The Gray Aftermarket of Gazelle

After getting rid of Verizon, I need to deal with the two Samsung S7s. The two units were in excellent condition, four years old and I always took good care of them with protective cases and shields. A quick Google found S7 in good condition could fetch $26 at Verizon, but $47 at Gazelle, which also has contactless option. I opted to go with Gazelle as I was (and am) trying to minimize trips to any public places. I packed the two phones in the box Gazelle sent. To ensure safe shipping, I left the two cases with both phones for added padding and protection.

Gazelle paid the quoted price for one of my phones. Then Gazelle claimed "scratches" and "damages" beyond acceptable condition for the 2nd phone, and that the price is now reduced to $13. There is absolutely no possibility that any of my phones could be in such condition as described. When I pressed for proof from Gazelle, the alleged "scratches" and "damages" became "image burn" and "defective screen".

I believe either Gazelle damaged my phone during receiving or inventoried them incorrectly. And of course, I did not document or take pictures before sending my two phones. Since I just wanted to get this 'project' over with, I ended up taking $13 for my 2nd phone. (I will not bore you with the less than pleasant encounter with Gazelle Customer Service.)

In the end, Gazelle paid an average of $30 for my two units in excellent condition, on a par with the Verizon quote. Most people will be initially lured by the much higher trade-in quotes. After shipping your phones, with time and energy already invested, you become part of a "captured audience" taking whatever they say. I mean what else to do, in my case? Reject the offer and ask Gazelle to ship back a phone they damaged, or worse yet, not even mine?

I know, one could say what is the big deal? It is only $30 we are talking about. But it is a matter of principle as I do not believe consumers should take the consequence of a poor business practice and process.

Strategy & Response to the Current Environment

Granted, I may have bumped into a one-time special promotion from Xfinity, and there could be better options from other carriers. Xfinity is a unit of Comcast, and I have had numerous customer service issues with Comcast cable in the past. Nevertheless, in this instance, Xfinity Mobile at least is aware of its market position and understands what's required for its marketing strategy and staff training in response to the current COVID-driven economic downturn to gain new customers while leveraging existing scale of Comcast cable/Wi-Fi business.

Remember how the Xfinity person also re-configured my cable bill? That was a customer retention move reflecting a proper customer-facing employees training program. From that perspective, I am almost inclined to think Xfinity Mobile must have an entirely different management team from that of Comcast's cable business.

Regarding Gazelle, it is an e-commerce LLC based in Boston, MA, much smaller and less established than Comcast and Verizon. Based on my experience, I believe the company is doing its best to adapt to and survive in the current environment. However, I do think its model and internal process/logistics is flawed thus doing disservice to its customers. Until that issue is addressed, I personally will not deal with them in the foreseeable future.

Delusions of Grandeur?

In contrast, my Verizon experience indicates the company appears complacent about its market leading position. Indeed, Verizon has been on a 20+ acquisition spree in recent years. The latest acquisition came in last month with prepaid carrier Tracfone for $6.25 billion giving the company an edge over rivals for low-cost phone service.

One high-profile acquisition was AOL-Yahoo, which Verizon had to write down $4.6 billion in 2018. The growing size and scale most likely give some delusions of grandeur, leading to a disconnect from customers and the business environment, thus driving customers away. This is reflected in its current marketing plans and poor (or lack of) customer-facing staff training. The store person also portrayed an arrogance on behalf of Verizon that it is the only game in town, which is far from the actual mobile market landscape.

Both Comcast and Verizon are deep-pocketed. However, just look at how Xfinity Mobile can offer me more data for less than half of what Verizon charges. That suggests margins in the mobile business are high enough for a lot of pricing flexibility by the carriers. And apparently Verizon is making a lot more from its customers than its competition and plans to continue doing so with one bad "promotion" after another.

Failure to respond to rapidly changing market conditions (which explains the AOL-Yahoo write-off), and poor staff training means many troubles ahead. It will be too late to rectify when numbers do the talking.

EIA Oil Market Analysis – Bearish Fundamentals Emerging in Year Over Year Comps

2019-06-01T19:25:00.000-05:00

By EconMatters

Introduction

In our past EIA reports this year, we referenced the fact that the inventory data wasn`t matching up to price expectations and the overall bullish sentiment conveyed by energy markets. We further stated that the data was going to have to improve or oil markets were headed for some repricing regarding bullish positioning. Subsequently after the last 6 weeks of EIA reports, and lack of a China Trade Deal, we are experiencing just that repricing in the oil markets. WTI has pulled back around 10 dollars a barrel over the last 5 weeks, with Brent pulling back almost 9 dollars per barrel. WTI is currently trading around $56.50 a barrel after the latest EIA report on Thursday and looking for support levels.

I might add that weak reports into June are not uncommon, but given the determined emphasis of OPEC and Saudi Arabia in reducing oil exports to the United States, we should have been experiencing much better EIA reports with increased drawdowns during this period if oil markets were as tight as market sentiment believed. Thus, we need to start having some large drawdowns in late June, July and August or the Oil market is going to experience continued weakness going forward. A couple of takeaways right now are that global oil demand isn`t as strong as anticipated from a global growth perspective, and the growth in US Shale production year over year, means that despite OPEC cuts, there is just too much oil sloshing around the world right now. Furthermore, the Oil Market covered by the EIA Petroleum Report is not in a net deficit for the first two quarters of 2019. If anything, the EIA Oil internals point to the Oil markets being in a surplus, as the most transparent oil market in the world, the focus of OPEC cuts, has noticeably worse internals year over year.

Oil Inventories

Let us look at the internals of the latest EIA Petroleum Report published on May 30^th in which oil inventories fell 0.3 million barrels, basically flat after having previous reports coming in with larger than expected inventory builds. We currently stand at 477 million barrels in storage facilities in the United States and are in a definable uptrend for this metric. A year ago, we stood at 435 million barrels in storage, so this year we are over 9 percent higher in oil inventories. Most of the increase is occurring in the Midwest (PADD 2) and Gulf Coast (PADD 3) storage facilities. In the Midwest Cushing, Oklahoma is responsible for 13 million barrels of the nearly 19 million barrels surplus for the PADD 2 region. And along the Gulf Coast there is about 26 million more barrels in storage facilities year over year. Thus, this region which is responsible for oil production and refining and exporting of both oil and products through this logistics supply chain is literally backing up with excess oil so far this year. And I am sure the Trump Trade War with China isn`t helping this situation as well.

Oil Production

In checking out the Oil Production numbers, if we take the 4-week averages for data smoothing purposes we are hanging in there at a robust 12.2 million barrels per day over the last 6 weeks. By comparison this metric stood at 10.7 million barrels per day of oil production in the United States a year ago. Thus, despite the OPEC cuts, the increase in US production, seems to be the cause for the rising oil inventory levels here in the Midwest, and the export market isn`t robust enough currently to offset this increase in US oil production. The real question here is would this be different if a Trade Deal with China happened in early January regarding the export’s component.

Oil Imports & Refinery Inputs

If we examine the Oil Imports numbers, the 4-week averages are declining from 7.2 towards the 7.0 level over the last 3 EIA reports, and stood at 7.7 million barrels a year ago for this metric. Overall, we can see the effects of the OPEC cuts with about an 8 percent reduction in oil imports year over year. Thus, these Oil internals would look a lot worse if it wasn`t for OPEC reducing exports to the United States. In reference to the Refinery Inputs number we are slightly down based upon the 4-week averages at 16.6 million barrels per day, versus 16.7 a year ago.

Gasoline Inventories

Now let us look at the Gasoline metrics, overall gasoline inventories rose 2.2 million barrels for the week and stand at 231 million barrels in storage. This is around 3 million barrels less than last year currently and represents the strongest part of the energy market this year in terms of tightness. However, this metric has been coming in recently suggesting that even this market is softening right now. We stand around 2 percent tighter than a year ago in gasoline stocks, but were much tighter 6 weeks ago based upon the year over year comps, and overall gasoline sentiment by traders in the products market. The Gulf Coast (PADD 3) has about 6 million more barrels in storage versus a year ago, but the East Coast (PADD 1) is starting to build as well. Since this metric has been the strongest in the energy space this year, we will watch this carefully for signaling purposes going forward.

Gasoline Production & Demand

The Gasoline Production numbers are slightly down year over year, about 2 percent lower at 9.95 versus 10.2 million barrels per day in examining the 4-week averages for this metric. The Gasoline Demand number is softer as well coming in at 9.5 million barrels per day versus 9.7 a year ago based upon the 4-week averages for this metric. But overall, gasoline demand is basically in line from a fundamentals standpoint if we compare the trends of the seasonal pickup in demand over the last two years. Thus, we didn`t collapse into recessionary levels amid a China Trade War, and slowing macro-economic data points, but we also didn`t explode higher as a result of the robust 3.1 percent GDP for the first quarter of 2019. I think the Gasoline numbers looked a little better this year due to overall run rates, some export needs, and overall refining strategy more so than increased underlying demand fundamentals in the marketplace.

Distillates Inventories, Production & Demand

We now move to the Distillates Market where inventories declined by 1.6 million barrels for the week and stand at 125 million barrels in storage. This rounds to a 10 million barrels increase in inventories year over year and represents a 9 percent increase in overall supplies. We stood at a rounded 115 million barrels in storage this time last year, and currently we have 125 million barrels of Distillates in storage facilities in the United States. Total Distillate Production came in at 5.19 for the 4-week averages and is slightly higher than this time last year at 5.06, but the weekly Distillates production numbers for the last 3 weeks are right in line with last year. There is some variability with the data which is why I compare both the weekly and 4-week averages to examine whether some noticeable divergence is occurring in the comps. At this point the data is basically in line with year ago levels. In examining Distillate Demand we come in at 4.02 based upon the 4-week averages for this metric, and a year ago we stood at 4.12 for this number. In referencing both the 4-week averages and the weekly data for the last 3 reports Distillate Demand is coming in slightly lower than year ago levels, and points to some softness in the market. We will continue to follow this metric as the Trade flow data regarding Freight and container shipments has shown weakness, much of it attributed to the effects of the China Trade War.

Conclusion

It is worth noting that Bond Yields are falling on the long end as oil is breaking down signaling deflation concerns as a result of global macroeconomic weakness which could further effect oil demand in the future. There are still a lot of Geopolitical concerns regarding Iran, Venezuela and Libya and supply disruptions can come out of nowhere like the Canadian wildfires several years ago, but as the last 5 weeks has illustrated some of the bullish sentiment has been taken out of the market. We have had a decline in Oil Rigs but US Production has held firm so far, and a Trade Deal is still possible over the next 6 months, and there are reports that US Shale producers are struggling from a profitability standpoint, so as usual there are a lot of moving pieces to the oil market. But if Oil demand growth starts decelerating due to global macroeconomic weakness, and the Trade War intensifies with China this will put further pressure on the oil market. However, we are entering the strongest part of the oil market from a seasonal demand standpoint with an increase in refining utilization rates due to the robust summer driving season so much will be learned about the fundamentals over the next 4 months. But we need to start drawing down Oil Stocks over this 4-month period. Otherwise, things will get worse before they get better in the oil market.

Gasoline Market Tightening in Latest EIA Energy Report

2019-04-14T17:19:00.000-05:00

By EconMatters

Introduction

After last week`s surprising build of 7.2 million barrels in the oil market, we were wondering if this was an anomaly, the effects of the shipping channel disruptions, or just a timing issue regarding tanker offloads. Well, we added another 7 million barrels to oil inventories again this week, but gasoline inventories had a heavy draw of 7.7 million barrels, thus giving analysts a lot to think about regarding this energy report. If Jeff Currie, head of commodities research at Goldman Sachs is right and we are in a 1 million barrel per day oil deficit, why are we having these outsized builds, especially given the low level of oil imports, not seen in ages? To say there are a lot of cross currents taking place in the oil market is an understatement. Thus, let us not jump to any hasty conclusions, and start examining the data in the weekly EIA oil report.

Crude Oil Stocks

The headline build of 7 million barrels in US oil inventories was mainly concentrated in (PADD 3) along the Gulf Coast moving from 226.8 last week to 232.2 for a build of 5.4 million barrels, and (PADD 5) along the West Coast moving from 48.5 to 50.2 million barrels in storage, for a gain of 1.7 million barrels. The Midwest (PADD 2) overall had a slight draw, mostly due to Cushing moving from 47.1 down to 46.0 as oil was pipelined to the Gulf Coast for refinery use as refineries ramped up run rates to operate at 87.5 percent of their operable capacity, 1.1 percentage points higher than the previous week. The East Coast had a slight draw in oil inventories of 500,000 barrels, and the Rocky Mountain region (PADD 4) had a slight build of 800,000 barrels of oil.

The past week ended on Friday with a relatively solid employment report, but we added another 15 oil rigs in the US, and Rigs are starting to turn back up as the oil price has risen significantly off the $42 bottom in December. And companies seem to want to monetize their opportunities while they can in the oil patch. But these builds point to just how much oil that is being produced right now, any recession coming into the picture hurting the demand side of the equation, could lead to some ridiculously large weekly builds, like in the 20 million range, and the oil market will crash hard again.

Crude Oil Production & Imports

In examining the production number, it came in flat week over week at 12.2 million barrels. However, oil imports came in at 6.6 million barrels, down 164,000 barrels per day from the prior week. Average crude oil imports over the last 4 weeks were 6.7 million barrels per day, 15.5 percent less than during the same period last year. This is where the fact that Saudi Arabia who owns the Motiva refinery in Port Arthur, Texas has stopped shipping in oil to the US market as part of their OPEC cuts. Last year Saudi Arabia was exporting around a 1 million barrels per day to the United States for refining purposes, throw in the Venezuelan sanctions, and we have a very low level of oil imports at 6.6 million barrels. Without the OPEC cuts, and the purposeful strategy of focusing these cuts on the US Market because it is the most transparent market, and gives the Saudi`s the biggest bang for their production cut buck, we would have added another 7 million barrels to this week`s oil inventory build number. Something to think about here, are the Saudi`s just moving that oil committed to the US to China, and thus this is largely becoming a shell game. Thus, less US oil exports needed for China.

Crude Oil Refinery Inputs

In looking at the Oil Refinery Inputs number, we came in at 16.1, which is significantly better than the 15.85 input number the previous week, but is much lower than a year ago where we printed a 17.02 number for this metric. Some of the reasons for the lower refinery input numbers year over year are due to outages, maintenance, etc. but also some of this lower refinery input number comes down to Saudi Arabia not exporting and refining their own oil here in the US, and other refiners not making up the difference. Therefore, we have these mixed currents in the oil market right now. Saudi Arabia in a sense is holding back the normal refining capacity due to their OPEC cuts strategy, that is playing out in terms of lower overall refinery run rates.

Gasoline Stocks

This leads perfectly into the discussion of gasoline stocks which were down a large 7.7 million barrels for the week, much larger than the previous drawdown of 1.8 million barrels the prior week. At 229 million barrels for Total Gasoline Stocks, which represents a 4.1 percent reduction from the level a year ago, we have reduced gasoline inventories by 25 million barrels in 6 weeks. The gasoline market is really starting to tighten as the oil market is starting to build. The normal market response would be to refine more oil into products by ramping of refinery run rates, but it hasn`t happened so far in this recent trend. But at some point over the next few weeks, the oil market will start pricing in a larger crack spread, significant enough to increase refinery run rates. This was the reaction in the energy complex today after the EIA report where the products outperformed the price gains in the oil futures from a percentage’s standpoint. Thus, increasing the crack spread for the products. The real question remains will this incentivize higher run rates over the next several weeks?

Gasoline Production & Demand

In checking out the Finished Gasoline Production numbers, we came in at 10.17 which is higher than the previous week at 9.81, but basically the same as a year ago at 10.15. We will see if this number jumps the next couple of weeks as the gasoline crack spread rises. The Gasoline Demand number came in at 9.8 million barrels per day versus 9.13 the previous week, and 9.27 a year ago. So quite a jump in the gasoline demand number from last week and a year ago. Maybe as the gasoline market tightens, participants are starting to hoard supplies right now, that is quite a jump. The real question here is whether this is an outlier number, or heads up to what is about to come down the pipeline regarding further tightening in the gasoline market? Some of this might be related to the Venezuelan sanctions.

Distillates Stocks, Production & Demand

The Total Distillates Stocks number came in flat for the week at 128 million barrels. However, we are closer to the bottom of the five-year averages band than we are to the top of this metric, so there are concerns here as well for this product crack to rise going forward. Today the gasoline crack outperformed the distillates crack as one would expect given the EIA inventory numbers. Total Distillates Production also increased from 4.87 the prior week to 5.04 this week, but unlike gasoline we produced more this time last year at 5.26 for the distillates number. And Distillate Demand came in at 3.78 million barrels per day this week versus 4.16 the previous week, and 4.17 a year ago. Thus, the overall Distillates Stocks number is roughly in line with last year at 0.3 percent below their level last year currently. Consequently, the Gasoline market is tighter than the Distillates market as we speak, and we haven`t seen this in a long time, it is usually the other way around.

Summary

Overall, a very interesting report, and the futures market gave the benefit of the doubt to the oil futures, and rewarded the crack spreads. We will examine in future reports whether this economic feedback loop manifests itself in higher gasoline runs at the refineries, and much higher overall refinery utilization rates to take advantage of higher product spreads versus the oil base input commodity.

EIA Oil Inventory Analysis, April 3, 2019

2019-04-04T11:53:00.000-05:00

By EconMatters

First Quarter Rebound

The oil market has had quite a robust first quarter right along with equities as the Fed has pulled back from rate hikes, taken a more dovish tone, and significant progress has been made on the Trade Deal with China, likely completed during the second quarter. We closed the first quarter just above $60 a barrel in WTI, and we had quite a good start to the second quarter testing $63 a barrel before the EIA weekly Petroleum Inventory report.

Oil Build

In looking at the report there are some notable data points, but let`s start with a look at the oil inventory numbers. We had a build of 7.2 million barrels, higher than the analysts estimates of a 3 million barrel build. We stand at 450 million barrels in storage (not including SPR) which is about 25 million barrels higher than this time last year. The notable increases occurring at Cushing Oklahoma with 47 million barrels in storage versus 35 million barrels year over year, and the Gulf Coast (PADD 3) with 227 million barrels in storage versus 221 million barrels last year at this time. Keep in mind the all-time highs for this metric occurred in March of 2017 at 536 million barrels in storage for total oil inventories outside the Strategic Petroleum Reserves.

Record Oil Production

In looking at the oil production numbers there is more bad news for oil bulls with a new record high in production at 12.2 million barrels per day versus 10.5 million barrels per day a year ago. This despite the fact that oil rig counts have been coming down the last two quarters from over 880 in the fourth quarter to 816 as of last Friday`s Baker Hughes Rig report.

Oil Imports

Oil imports came in at a paltry 6.8 million barrels per day versus 7.9 million barrels per day a year ago. Even looking at the 4-week averages for this metric there is about a one million barrel per day difference between last year. This illustrates the OPEC and Saudi Arabia led strategy of reducing exports to the United States to try and tighten the market, they understand the most transparent market gets them the best bang for their buck in terms of potential impact from the latest oil production cuts agreed upon at the last OPEC meeting.

Baker Hughes Rig Count - US Oil Rigs Only

Refinery Runs

If we look at Refinery Inputs, we ran 15.85 million barrels per day versus 16.9 a year ago. The 4-week averages for this metric are all below year ago levels as well with barely breaking 16 versus 16.7 a year ago. Thus, the reason for the product draws we have been experiencing recently in these weekly inventory reports.

Gasoline Stocks

The good news is that this has helped reduce some of the excess gasoline inventories where we had another drawdown of almost 2 million barrels for the week. We now stand at 237 million barrels of gasoline in storage versus 239 million barrels a year ago. Remember we stood at 257 million barrels of gasoline in storage about 6 weeks ago, working off a good 20 million barrels of gasoline in storage. Although the East Coast still has more gasoline in storage at 64 million barrels versus 57 million barrels a year ago. This is important because the East Coast gasoline number is closely watched by analysts for any weakness in the market. The biggest decrease in gasoline inventories occurred along the Gulf Coast in PADD 3, reducing gasoline inventories by around 9 million barrels in 6 weeks.

Gasoline Production

In checking out the Gasoline Production numbers we produced 9.8 million barrels per day versus 10.1 million barrels a year ago. The 4-week averages are all in the 9.8 range versus 10.2 a year ago, thus it seems like a conscious effort to work off some of these excess gasoline inventories with lower run rates year over year. As Refineries operated at 86.4 percent of their operable capacity which was slightly below the level for the prior week.

Gasoline Demand

In viewing the Gasoline Demand numbers, we came in at 9.1 million barrels per day for the week versus 9.2 million barrels per day a year ago. The 4-week averages for this metric also came in slightly below the year ago levels. Not that dramatic, especially considering some of the slowdown we are seeing in the economic data for the first quarter in the United States and around the World probably reflecting the damage from the Trade War with China and some of the lagging effects on growth and capital investment projects. However, this metric is something to watch over the next couple of months to check for a potential boost from a successful China Trade Deal being completed and stimulating growth again in the overall global economy.

Distillates Stocks

In looking at the Distillates stocks we are down to 128 million barrels in storage versus 130 million barrels of Distillates stocks a year ago. Moreover, we have worked off around 10 million barrels of Distillates stocks over the past 6 weeks with lower refinery run rates. All the regional numbers are reasonably close to year ago numbers so no stand out differences to report here.

Distillates Production

In reviewing the Distillates Production numbers, we produced 4.9 million barrels per day versus 5 million barrels per day a year ago. But the 4-week averages for Distillates Production are all rather steady at 4.9 million barrels per day over the last 3 inventory reports and reasonably in line with the data for this metric over the last couple of years. Again, as the world uses around 100 million barrels of oil every day, when things really start slowing down it will be quite apparent in these weekly numbers. As of yet, nothing alarmingly so for this metric.

Distillates Demand

In looking at Distillates Demand we come in at 4.2 million barrels per day versus 3.9 million barrels per day a year ago. And again the 4-week averages for this metric are coming in around 4.2 to 4.3 million barrels per day in a steady manner slightly above year ago levels.

In Summary

Overall, the big build in oil inventories is something to pay attention to going forward over the next couple of weekly reports. Oil bulls seem to be pricing in the completion of the China Trade Deal, and expecting US Production to either stay at current levels or start coming in a little given the reduction in rig counts. We can see the effects of the OPEC cuts in the form of lower oil imports, but this is being made up from the growth in US Production.

If US Production continues to rise over the coming months, and Oil Inventories start building again we could see some profit taking in the oil market, especially if the economic numbers continue to disappoint. In that case, we might expect the building of short positions given the runup in oil over the first quarter of this year. Given that equities and the Oil Markets have been trading together the last two quarters, thus trading off the global growth or recession theme. If oil rolls over, it wouldn`t surprise me that equities are rolling over as well and the culprit will probably be related to oil demand lacking in a weakening global economy. We are still in an uptrend in both oil and equities but we have had quite a run so far, with the question being how long this rally will continue in both the oil market and equities.

As for the Oil Market we are entering the seasonally strong part of the market, the ramp up into the summer driving season. Refinery run rates should start increasing over the next couple of months with the utilization rate moving up to the 94 percent area during the heart of the summer. Seasonally traders tend to run up oil into the heart of the summer driving season, think July 4^th weekend. If the global economy holds up, and US Production stays around these levels, increasing seasonal demand for gasoline could support the oil market into July taking a run at the technical resistance levels of $70 and then $75 a barrel for WTI.

However, we are going to need some follow through with overall oil and product draws, bringing down overall inventory levels. Right now, we are just bringing down products at the expense of crude builds. For oil prices to sustain above $65 a barrel we are going to need oil inventories to start moving down towards 400 million barrels in storage in a definite trending manner over the course of the drawing season in the oil market. We moved up nicely for 3 quarters in 2018 reaching a high of $77 a barrel, only to fall off a cliff in the 4^th quarter. There are a lot of moving parts in the oil market, and there are sure to be many plot twists yet to come for the remainder of this year, so stay on your toes as a market participant. Things can change very quickly in the oil market, both from a fundamental and technical perspective.

Fundamental Analysis of the Oil Market

2019-01-26T10:40:00.000-06:00

By EconMatters

Introduction

There are a lot of cross currents in the oil market right now with slowing growth in China and the United States from a Trade War, a prolonged government shutdown, Venezuela turmoil, and record domestic oil production in the United States. It should be no surprise that investors are worried about this commodity in their portfolios after having it drop from $77 a barrel in October to under $43 a barrel in December, that is entirely too much price volatility on a percentage basis than most investors can stomach. So, let us look at the latest EIA Inventory report for judging how the fundamentals are holding up right now.

Oil Inventories

Crude oil stocks currently stand at 445 million barrels in storage facilities in the PADD Districts around the United States, this compares to 412 million barrels in storage a year ago. This reflects that in 2017 during the second half of the year we were in a supply deficit, but with the increased oil production year over year, and the effects of the Trade War with China, with China importing less US Oil, we were in a supply surplus during the second half of 2018, and especially after the summer driving season ended after labor day and refiners cut back run rates. The bulk of the added storage occurred in PADD 3 along the Gulf Coast moving from 205 million barrels in storage a year ago to 231 million barrels in storage currently. If China and the United States agree on a Trade Deal, China could start ramping up oil imports from the United States as part of the deal, and this would come out of the PADD 3 storage overhang.

Production Numbers

We next look at oil production, and it is still amazing to think how far the United States has come from when we were producing 4 million barrels per day in 2005 to where we are today at producing almost 12 million barrels of oil per day. Right now, US oil production stands at 11.9 million barrels per day versus 9.87 million barrels per day a year ago. This number is pretty crazy when you think about it, let us just round up to 9.9 million barrels of production last year, and this year we stand at 11.9 million barrels, this means we added another 2 million barrels per day of oil production on an annual basis, after already extended gains from the pullback to around 7.4 million barrels of oil production after the oil market crashed to $26 a barrel in February 2016. Yes, global oil demand led to demand growth of around 1.5 million barrels per year on average the last couple of years to offset some of these production gains, and Venezuela production continued to decline, but still in a vacuum this number is quite impressive.

Oil Imports

Moreover, Oil imports are roughly in line with year ago levels, slightly lower but not to a significant degree to reflect the massive increase in US Oil production. For example, if we look at the 4-week averages for US oil imports we currently stand at 7.74 million barrels per day versus 7.9 million barrels per day a year ago. This number is more volatile from week to week, so it is better to look at the trend in the data using the 4-week averages.

Gasoline Inventories

Moving on to the Gasoline side of the equation, this is where the real weaknesses in the oil supply chain start to show up. The gasoline market has been the weakest market in the products space for several years now. Total Gasoline stocks currently stand at 260 million barrels across the PADD Districts versus an already elevated level of supplies at 244 million barrels this time last year. In fact, this is the all-time high in Gasoline Inventories if we look back through the historical data as we spiked to 251 million barrels in storage in March of 1990. We have been steadily climbing in gasoline inventories, putting in higher lows and higher highs since around 2012. And this is just late January, we usually continue to build in gasoline inventories through February at the very least, so expect some more record highs in this category. In looking at the year over year increases in gasoline inventories, the PADD Districts that stand out are the East Coast PADD 1 at 68 million barrels versus 63 a year ago, the Midwest PADD 2 at 61 million barrels versus 55 a year ago, and the Gulf Coast PADD 3 at 91 million barrels in storage versus 84 a year ago.

Gasoline Demand

If we examine gasoline demand the numbers are basically the same as last year, and taken in context with the latest Employment Report, the economy is still relatively strong, and not completely falling off a cliff like in 2007/08 as the Financial Crisis worsened economic conditions sending the United States into recession. That being said, there are still headwinds for the economy with the US being in the late stages of a decade long strong business cycle, higher interest rates, a Trade War with Tariffs, and US Political gridlock which continues to put a damper on economic growth in the United States.

The growing inventories in Oil and Petroleum Products can be explained in some sense due to larger global use of supplies daily. In short, the world uses more Oil and Petroleum Products every day, so the law of large numbers necessitates that we keep more in storage in the supply chain. But on the other hand, since we produce and refine so much oil and products domestically each day compared to the past, an argument can be made for not needing as much inventory in storage for supply chain logistics. The one thing that is clear right now, is that the United States needs a strong export market for both gasoline and oil given the current levels of production and inventories in order to justify a higher price for these commodities. If the Global economy continues to slow down, and we enter a Global Recession, then US Oil Production needs to be reduced dramatically at these record high levels.

Distillates Inventories

Let us check out the Distillates Market where we currently stand at 142 million barrels in storage versus 140 a year ago. The numbers are about the same as last year, however the rise in Distillates stocks the last 6 weeks has been rather dramatic, and points to considerably more weakness than a year ago where there was a much more gradual rise in inventories. Pay attention to the Distillates number for the next 6 weeks, if we continue to build rather dramatically, this is extremely bearish for the overall economy, reflecting weak industrial growth and global trade, and the oil market in general. The Distillates Market has been the strongest sector of the energy space the last couple of years, reflecting strong global growth, overall business activity, and industrial demand drivers.

Distillates Production

In examining the Total Distillates Production numbers in the 4-week averages we are producing about 250,000 to 300,000 more barrels per day than a year ago. While at the same time Distillates Demand is about 150,000 to 200,000 below year ago levels based upon the 4-week averages of the last three weekly reports. Thus, the dramatic rise in Distillates inventories, and something to pay attention to going forward.

In Summary

In summary, the Oil Market bottomed out at $42.60ish in December, along with equities that were both oversold, and had a substantial short covering positioning rally in both asset classes. The Oil Market has been trading right in lock step with equities since the 4^th quarter of 2018, and the first quarter of 2019 on global growth concerns. When bad news comes out regarding the China Trade War, or Economic Growth concerns spike both equities and oil sell off together in the same correlated trade in financial markets. However, the Oil Market has a lot of moving parts to it from US domestic production, to the continued growth of Emerging Markets from a long-term perspective, to the Geopolitical instability in the Middle East.

It will be important to follow the data to examine whether Oil and Petroleum inventories continue to rise despite the recent OPEC cutbacks as we move through the seasonally weak part of the Oil Market through February. But if we are continuing to experience weakness in the demand numbers come mid-March and late April as Refiners start ramping up for the summer driving season, then expect further weakness in the Oil Markets. In addition, if there is no Trade Deal with China, and the Global economy deteriorates further, there will be considerably more pain in the energy space, both from a credit, equity, and commodity perspective. When the Oil Futures price falls, energy credit risk spikes, and energy equity prices fall as well in the financial markets.

Longer Term Forecast

Longer term though I am rather bullish on Oil, and I think there is a considerable chance of a substantial spike to new record levels in price sometime over the next 10 years. Thus, any historical crash in oil prices in the near term should be bought with plenty of holding liquidity for long term investors looking to speculate far out on the futures curve. As Russia, Saudi Arabia and the United States have rather limited upside spare capacity, and are all pumping at record levels of production currently, and where I expect Global growth to be over the next decade, with the caveat of no significant long-term global recession, I expect the world to need more oil, much more than producers have the ability to produce given the Cap Ex investment of the last 5 years. Thus, on a forward-looking basis, I expect there is a good possibility of an oil supply crunch, where the oil market tightens much further than the current futures curve or energy analysts have priced in or modeled over the next decade in the oil market.

The Fourth Quarter Market Meltdown Explained

2019-01-23T16:48:00.000-06:00

By EconMatters

Correlated Chaos

The financial markets these days are highly leveraged, especially with loose monetary policy of the last decade providing ample credit for one sided risk taking. Add in the fact that financial markets have become highly correlated with computer driven algos preprogrammed to do x if y occurs. And assets themselves having predetermined paths in Risk On versus Risk Off environments. Throw in a heavy dose of coordination also known as collusion in some circles, client front running, crowd behavior, group think, and human psychology and you get what we experienced in the fourth quarter this year.

Bad News & Financial Markets

But remember the old idea of Trees Falling in the Woods, and the question if nobody is around, do they make a sound? Well bad news isn`t really bad news unless somebody sells in financial markets. All the known bad news and negative catalysts existed before October 1^st 2018, but financial markets ignored them all for three quarters while oil continued to put in new highs, and tech stocks continued to multiple expand into the stratosphere.

Known Catalysts

The trade war with China started 2018 in negative terms and ratcheted up every month with very little effect on financial markets besides an occasional after-hours futures selling period on a negative Trump tweet about tariffs that was soon bought up the next morning or sooner at the European open. The Fed continued to raise rates, talk hawkish and guide to more rate hikes. The midterm elections were never going to be good for the status quo of a Republican majority in both the Senate and House of Representatives with Trump`s low approval ratings and multiple controversies surrounding his presidency. The economic data all pointed to a softening in global growth from Europe to China and the rest of emerging markets, and it was obvious to all that the Trade War with China was only making things worse. All these factors were known, clearly visible and with financial markets being forward looking instruments highly negative for all Risk On asset classes. However, it sure didn`t stop investors from basically buying everything that wasn`t nailed down. Remember Oil at $77 a barrel, and Facebook at $220 a share, and Apple at $230 a share?

One Sided Markets

Thus, bad news isn`t really bad news for financial markets unless the big players start the avalanche of selling that then permeates the financial markets in the group participation of selling that follows suit. It is just how the game is played on Wall Street with everybody buying and selling together in a coordinated manner. Financial Markets are as one-sided as they have ever been throughout the history of markets. There are a lot of reasons for this in financial markets evolving through increased technology, global participation, computer modeling and algo programs, access to fund flows by everyone, interconnectedness of financial markets including institutions and participants, and improved real time communication that can see the future before the day`s trading occurs in financial markets by reading order flows. One could even say that there is no way to have any “Chinese Wall” separation from an information flow standpoint whatsoever these days. Once a Big Player is going to sell, the news spreads fast in financial markets through many communication channels. Moreover, that genie is out of the bottle and probably never returning without major changes from a structural and regulatory standpoint.

The 4^th Quarter Explanation

Given this backdrop here is what happened in financial markets during this fourth quarter. Over the last 10 years it is not uncommon for financial markets to have very strong fourth quarters, even if they start out very weak from an Ebola inspired market selloff, a China slowdown contagion scare, or a pre-election go to cash selloff. All these selloffs in the fourth quarter provide nice entry points for buyers and investors to push markets much higher into the year end close. Well we started October with the selling, it was apparent the moment the Third Quarter ended, and the Fourth Quarter began that something was different in the Price Action of Financial Markets.

The VIX Market

You could experience this difference in the VIX Markets, it was obvious that somebody big was selling, and everyone knew it after a couple of days as the word spread. There was no new news, like a major terrorist event, Enron Collapse or major Geopolitical or Natural Disaster that would suddenly change things. All the known catalysts mentioned at the beginning of this article were known by all investors for the entire year. The first part of the selling was just positioning before the Midterm elections, an event that likely could be negative for the status quo. But said investors wanted to lock in the Third Quarter before unwinding ahead of the midterm election. So once October 1^st beckoned in the fourth quarter time to unwind some positions. This is not unusual as we saw this before the Brexit Vote, and the last US Presidential Election in 2016. There was a slight bounce after the election, only to have major selling into that rally. The why is the question here.

Short Side versus Long Side

It isn`t very complicated there was just too much to overcome to have a strong Santa Claus rally of a Fourth Quarter this year to the upside. And like I always say, when in doubt follow the money. Remember in order to push markets higher a long investor had to overcome a heightened Trade War with China, Rate Hikes, Impeachment Talk from the Democrats, slowing Global Growth acerbated by the Trade War, already extended positioning in many asset classes from bonds and equities to the oil markets, and the contagion that plays out when credit markets and leverage starts to unwind.

In short, the play was to sell previously extended positions in overcrowded trades and asset classes, and at the same time buy derivatives and open new short and opposite trades in the direction that the big players were unwinding positions. So, there was a Santa Claus Rally this Fourth Quarter, it was just from the short side this year. You better believe a lot of money was made this Fourth Quarter in Financial Markets. It wasn`t an accident there was no bid on many days in the Fourth Quarter of Markets. And it wasn`t coincidence that Oil and Equities traded together lock step in the Fourth Quarter when looking at the big picture. Of course, Oil was oversold at $45 a barrel, but it was going lower because the same institutions that were selling equities were selling oil markets, it is the same trade. And you can bet that the capital unwinding from equities was moving into bonds. Markets are so correlated these days that once the VIX goes above 20 and stays there for an extended period, one can just buy puts below the market because that`s where markets are headed.

Don`t Buy the Dip This Time

And sure, investors who were unwinding big positions lost money on those positions in the Fourth Quarter, but this was mitigated by the large amounts of money made through derivatives and shorts on the very markets and positions that were being unwound. If you’re a large investor, and you know other large institutional investors, and you are selling, and you know that your selling will move the markets, then you are in essence front-running yourself. The moral of the story is size usually provides an advantage in financial markets. You and everyone else know not to buy the dip this Fourth Quarter because communication of this sort is conveyed implicitly and explicitly from an institutional standpoint. For retail investors watch the VIX for your clue, what level is it hovering at? Is it above 17, is it routinely moving and staying above 20, multiple spikes above 23? These are signs of the underlying information spreading across financial markets.

Short Covering Rally & The New Year

And for confirmation that a lot of money was made to the short side during the Fourth Quarter just look at the large recovery in Oil and Equities the last week of the year as some positioning was closed out at year end and continued heavily into the start of the new year. Yes, there were buyers, but where were these buyers for most of the Fourth Quarter? They walked away from Markets from the long side if we are talking about Oil and Equities during the 4^th quarter. And you better believe the same people who were shorting the market, were buying up their positions and opening new positions at the start of 2019.

Just like the end of the 3^rd quarter and the start of the 4^th quarter was an important driver of positioning by market participants, likewise the end of the 4^th quarter 2018, and the start of the 1^st quarter 2019 was an important driver of capital fund flows and market positioning. In summary, pay attention to the VIX for clues as to a change in market positioning, especially when it is time to change direction in a major way. If the VIX is routinely being sold down below the 13 level for most of the year, and then it all the sudden jumps above 17, quickly moves above 20, and spikes above 24 and continues to stay around the 21 to 22 level for an extended period of time you know that this represents a regime change or paradigm shift in the underlying fund flows of the financial markets.

Gasoline Inventories At Record Levels For This Time Of Year

2018-10-02T01:40:00.000-05:00

By EconMatters

Oil Market Speculation

It is ironic that as Oil markets are at multi year highs and so are gasoline inventories for this time of year. But that is what you get in futures driven speculation in financial markets. We have gasoline prices both at the pump and in the futures market going up while existing gasoline inventories in storage are going up as well, and in fact are much higher than this same time last year.

Building Product Inventories

The oil market is a scam market in many ways, you can make the oil inventories go down if you process enough products for refining, even if you don`t have the product demand, or actually need to be refining the product because nobody really is using this product. Both distillates and gasoline inventories have been quietly building the last couple months, under the radar as traders focus on perceived Iran oil shortages.

Iran Will Get Around Sanctions Like North Korea

Iran will do what they always do under a sanctions regime, they will discount their oil heavily, and sell their oil on the black market. This runup in oil markets is largely the result of oil futures speculation, in financial markets where nobody actually takes delivery of physical oil barrels.

EIA Data

For all this Iran hype about how tight the oil market is, we actually had an oil data point, you know real facts which shows both oil and gasoline inventories building this past week via the weekly EIA Oil report. Furthermore total petroleum products actually built this past week while oil prices were going north. The oil market has very little to do with the actual fundamentals, but more so with capital flows.

Gasoline Glut

Let us look at the actual oil market fundamentals per the EIA Data. The most recent EIA Oil report showed gasoline inventories at 236 million barrels in storage, for frame of reference at this time last year with much lower oil and gasoline prices we only had 217 million barrels in storage, that is an increase of 20 million barrels in storage in a supposedly tight market. In fact gasoline inventories have been at glut levels the entire year, there isn't enough actual real demand to work these gasoline inventories off, so the gasoline inventory levels continue to build.

When you look deeper in the gasoline numbers the story gets even more bearish, on the east coast there are now 67 million barrels of gasoline in storage, which is a huge number given last year we were bloated on the East Coast in gasoline inventories, and we only had 56 million barrels of gasoline in storage this time last year. Yeah this oil market is all about the fundamentals, hogwash it is about financial players speculating in oil market futures. If we look at the Gulf Coast we have 82 million barrels of gasoline in storage compared with 74 million in storage this same time last year. Thus it is very transparent, supply is more than demand for the products.

Gasoline Prices at the Pump

But the actual on the ground fundamentals aren`t being reflected in gasoline prices at the pump or the gasoline futures market because of rampant oil market speculation. Thus economics are working at odds with the actual fundamentals of the market. The actual retail average gasoline prices in the market last year at this time were $2.58, and the most recent we are at $2.85 with a lag, after the runup in gasoline futures this week it will be much higher.

The culprit is the scam nature of the oil market and the refining industry at large which basically can manipulate their profits by juicing up gasoline crack spreads via gasoline futures. Thus we were at $1.67 for RBOB regular gasoline futures this time last year, have much more actual gasoline supplies, and the most recent RBOB Gasoline futures are close to $2.10, and rising in a week when we had another bearish gasoline build in the physical market.

Distillates Market

What has gone under the radar is the bearish build in Distillates inventories during this last quarter, another bearish sign of actual weak economic demand in the energy market. We had knocked off a large glut in the Distillates Inventories last year, and were showing real underlying strength this time last year. But we have largely eroded all the gains made in reducing these inventories with steady building back of inventories. For example, a year ago we stood at 138 million barrels in Distillates storage, and for most of the early part of this year we were at a huge year over year deficit in Distillates Inventories, now we have been steadily building in the recent quarter, and are right back at the same 138 million barrels in Distillates inventories. Again, you wouldn't know it by the price in the actual market for Distillates with on highway Diesel Fuel Prices $3.28 and rising compared to just $2.79 a year ago with the exact same level of inventories. If we look at the other component of Distillates in Heating Oil Futures prices we were $1.82 a year ago, and most recently we are at $2.35.

Emerging Markets & Demand Destruction

There is more bearish news regarding these high prices and their effect on emerging markets and demand, especially given the strong US Dollar versus the much weaker emerging market currencies which only raises the prices of gasoline and oil in these emerging market economies. Moreover, most of the demand gains in the oil market from the demand side of the equation have been coming from emerging markets as the developed markets are mature, and in many cases are showing declining real demand. So add to this the fact that many gasoline subsidies have been taken away or reduced in these emerging market economies, throw in a strong dollar, and rising prices on top of that in an energy speculation wave, and we could really start to experience demand destruction for gasoline and petroleum products in the one area which was providing the actual real demand growth in the energy market.

China Trade War

Throw in a trade war with China that is only starting to hit both economic supply chains of the United States and China, and the oil markets are not looking anywhere near as good as the headline runup in electronic energy futures.

Oil Market Speculation - Electronic Markets

Given that fundamentals in the market are taking a backseat to rampant speculation, the best way to lower energy prices is to bust the speculators out of the market. Donald Trump has tried tweeting about OPEC with very little effect, he fails to take responsibility for his role in promoting the rampant speculation in the oil market with his Iran policy which gives the oil bulls the only real bull case that can be made for these high prices divorced from the actual fundamentals. Oil bulls always need a story to hype, a reason for believing that this time is different, that high energy prices will not cause the next oil market crash and economic recession, and this week it is Iran. Please, North Korea was able to buy all the oil on the black market it wanted with the most severe sanctions imaginable, Iran has a proven track record of getting around oil market sanctions, all it means is some country is going to get much cheaper Iranian discounted Oil. But the Iranian story fits the narrative the oil bulls are trying to weave in the financial electronic marketplace. A fiction perpetrated for financial profits at the expense of consumers in the fundamental economic marketplace.

Donald Trump & High Oil Prices

There are a couple of choices that Trump could do to lower energy prices immediately. He could change his stance on Iran killing the Iran Shortage hype story by either allowing waivers for Iranian Oil or he can make nice with Iran and do a Deal, you know the thing that he is so good at making Deals. How is that working out Mr. Art of the Deal Trump?

Since he will lose too much face by admitting he is largely responsible for the runup in oil prices with his failed Iranian strategy, the only real option I can see for Trump to crush the oil shorts given that energy markets are largely speculative in nature with nobody actually taking delivery of physical product but just buying electronic energy futures.

SPR Release

The best way to crush the oil shorts is to do a large (too big to fail) 100 million barrel coordinated release along with Europe of the Strategic Oil Reserves, and this will immediately take the excess oil market frothy speculation out of the market. This is what has worked in the past to reduce this kind of rampant speculation in the market. But it needs to be big to be effective, and it needs to be coordinated with European Strategic Oil reserves to hit the various grades that the market will require to fully flood the physical market with oil.

Market Surprise

And it needs to catch the market by surprise to really teach the lesson of beware of just buying up the market with rampant enthusiasm without any potential consequences, as at any time, the SPR Hammer can come crashing down, and blow your speculative ass out of the water, costing you a fortune for your overly speculative fervor in the oil markets.

Tweeting Versus Action

So far Donald Trump has been asleep at the wheel regarding his negative effect on the oil market. He alone is responsible for the recent runup in prices, when the actual fundamentals point to much lower energy prices for consumers. The question is will Donald Trump crush the Evil Oil Market Speculators and do a large, coordinated surprise SPR Oil Release, or will he just continue to sit on his hands, and tweet mindlessly at OPEC? It is a time for action Donald, either put up or shut up about high oil prices which you caused in the first place with stupid policy strategy that has backfired for consumers at the pump!

Tesla Shares Soar on Elon Musk $420 Target Tweet

2018-08-07T17:22:00.003-05:00

By EconMatters
August 7, 2018

Elon Musk taught every CEO a dangerous lesson today. Musk, CEO of Tesla, tweeted today that

"am considering taking Tesla private at $420, funding secured".

Tesla stock prior close was around $342. After his tweet, Tesla stock shot up almost 11% to close at $379.57 today and rising to $383 after hours at this writing.

Going Private - Dell vs. Tesla

There's a reason there are so many SEC regulations governing what not to say or act by company C-level executives. Let's take Dell as an example. Michael Dell took Dell private in 2013 and Dell stockholders got paid $13.65 per share to leave the company on its own. That price is higher than the $11 range Dell stocks were hovering at.

The point is that rumors did float around about Dell being bought out, but Michael Dell never personally released any statement regarding a target price. Company executives are banned from discussing company stock price due to the potential unfair and biased market-moving effect, let along giving a target price that is 23% higher than the last close of $342.

Greed Knows No Limit

Elon Musk not only set a price target of $420, but also followed up with another tweet minutes later that

"Shareholders could either to sell at 420 or hold shares & go private".

It seems the purpose of this tweet is to twist the knife a bit more to ensure investors not selling Tesla stocks and "encourage" more buying to bring the stock price up to his target of $420.

Greed certainly knows no limit. For a company that has never made a profit in 15 years with cash burn and leverage at insanely alarming rate, Musk actually has the nerve to imply Tesla is undervalued at even $340 level? If this is not the most blatant stock and market manipulation to the umpteenth degree, I cannot imagine what else would top it.

It is one thing that some layman says the same thing, which is not capable of moving the market, it is entirely another when a celebrity CEO such as Elon Musk talks up his books like this.

The Inevitable Reality of Tesla

I'm certain Elon Musk is sophisticated enough to know what he said and did may land him in legal troubles but why did he do it anyway? My assessment suggests Tesla is indeed in serious financial trouble as many analysts have warned, and this looks like Musk's last ditch desperate attempt to hide the records from the public and the SEC before Tesla goes bust.

Then the challenge became how to ensure "desirable" funding and valuation before the buyout -- by propping up the stock price as much as possible by any means, of course. Michael Dell followed the CEO SEC rules and let the market decide the "fair" price which resulted in his equity partners snatched up his company for a song. Elon Musk is not about to let that happen to Tesla which is inevitable as the reality sets in and his charisma and renewed promises can only go so far.

Insatiable Ego in the Wrong Place

Tesla is the most shorted U.S. stock (for good reasons) and Elon Musk has a long standing feud with those short sellers. Musk has moved mountain and earth, laying off many workers and his bizarre earnings call notwithstanding, to keep up with the appearance that Tesla's production ramp-up is on schedule to appease investors as it is sadly the only thing investors can find some consolation. He even went as far as borrowing personal loans to buy Tesla shares, a majority of them at the historical high, creating a less liquid market thus punishing the shorts.

According to Zero Hedge, Elon Musk has personally borrowed $624 million in loans from various investment banks as of March 2017, including Goldman and Morgan Stanley, to buy Tesla stock, and that loan number is estimated to reach $800 million by now. That is almost like colluding with banks that most likely hold Tesla stocks to arrive at a win-win for all. This goes way beyond just a feud with short sellers and yet another desperate act to keep stock price afloat. Again, I do not believe this is even legal for any CEO to artificially manipulate stock price like this.

Fact Speaks for Itself, but Which Fact?

I get that every CEO tends to think their company stock is under-valued due to something intangible the investing community has failed to take into consideration. However, the best way to crush the nay-sayer is to let the fact speak for itself. Make good product at good price dominating the market and let the profits show what your company is really worth.

That $800-million personal loan would have gone a lot further investing back into Tesla to hire higher skilled workers and competent supply chain management professionals. I question the motive and intellect of going as far as borrowing millions of dollars just to buy company stocks for the sole purpose of jacking up the stock price and crushing the shorts.... unless the Tesla fact cannot speak for itself to what Musk wants.

Where Is SEC in All This?

Another reason Musk chose to make such moves is that the current weak SEC and a "tolerant" financial regulatory environment has emboldened almost everyone from the President, Central Banks to … Elon Musk to "dabble" in market moving "tweets" or acts and nothing would ever stick.

On the other hand, many of the Tesla short positions are by very powerful fund managers and institution investors. Musk’s tweet today probably caused enough pain and legal ground for these power houses to launch a legal assault on Elon Musk. Whether it will stick or not probably depends on the bigger political environment after the mid-term and presidential re-election.

Mourning the Loss of Ethical Standards

On a side note, I cannot help but mourn the loss of ethical standards in America today. I am not talking about some high moral ground, but the basic right from wrong.

The response to the Elon Musk’s tweets today centers around if $420 if really Musk’s target, how Musk came up with that valuation (why would anyone even bother to ask?). Most news media I read are in awe that Musk's target of $420 will likely be met in no time. Musk also openly tweeted thanks to investor's support. Yet nobody questions this previously considered taboo illegal act by a prominent CEO.

Government officials and company executives used to be held at a much higher moral and ethical standard so to lead the public by example. That sadly has gradually gone down the drain over the past two decades.

ICO's: 81% Scams and $500 Million in Lost Investment

2018-07-09T20:15:00.001-05:00

By EconMatters

July 9, 2018

As investors shrugged off the threat of an ongoing trade war Trump waged against almost the rest of the world, the broader stock market went into a really today with S&P 500 at its highest close since June 12. The cryptocurrency, on the other hand, is not able to capitalize on investors short-term blind bliss. Bitcoin, the industry’s bellwether, is down about 57% this year.

$11.75 Billion Poured into ICOs in 2018 Alone

For a while, Initial Coin Offering (ICO) was one of the hottest investments on earth. The logic is that If Bitcoin could get as high as $20,000 generating spectacular returns, then you should get in on the ground floor for another Bitcoin-like digital currency. Indeed, ICOs have raised $11.75 billion this year alone, according to CoinSchedule.

ICO Death Rate = 56%

How do you think the average ICO has performed? Bloomberg reports a Boston College study finds about 56% of crypto startups issuing their own version of digital coins die within 120 days of their ICO. That means only 44% of ICO startups survive after four months from the end of their ICOs. The sample size of the research covers 2,390 ICOs that were completed before May.

1,000 Digital Coins Bit the Dust

The Boston College study is not the only one illustrating the very risky business of ICO investing. Two different sources put the number of tokens already bitten the dust so far between 800 to 1000. This is a shocking statistic given that there are only about 900+ crypto available over the internet a year ago.

Finding the Next Apple or Scam?

The main problem is that many of these ICO companies are start-ups supposedly raising fund to develop and build the platform and the related infrastructure for implementation and roll-out. As Bloomberg puts it “most ICOs were raising money without having an experienced development team or an actual product, just white papers studded with promises.” So most of these start-ups do not have users or participants supporting their cryptocurrency yet. Business 101 is very clear - A business is doomed to fail if there is not enough customer using your product.

Worse yet, in order to entice potential investors, these companies usually spend a lot of money on marketing and advertising hyping their ICO and the prospect of finding “the next Apple.” Not to mention many of these ICOs are scams where the “executives” just took the money and let it all fall apart, naturally. ICO advisory firm Satis Group finds 81% of the coins with 50 million or more in market caps are scams. I can only imagine a lot more scams running in companies with smaller market caps.

These failed projects have cost investors plenty. One research firm estimates investors may have still lost as much as $500 million

Is Anonymity Really That Cool?

In addition, the cryptocurrency frenzy in recent years has floated the coin industry to the radar screen of many government and regulatory agencies. There are 130 cryptocurrency-related Investigations ongoing at FBI. A supervisory special agent of FBI admitted this is just “a small sliver at this point.” Contrary to one of the much touted benefits of digital coins – trackable (albeit anonymous) transactions on a permanent internet-based leger, FBI also noted how the technology of digital-currency payments have facilitated an increase in illegal activity such as drug trades, human trafficking, kidnapping and ransomware attacks. Perhaps millennials need to rethink if the anonymous "feature" of cryptocurrency is really that cool?

Blockchain is No Magic Pill Either

The most promising part of the cryptocurrency technology is blockchain. Quite a few hitched the up train by simply changing their names to contain the term "blockchain" or by a mere announcement that exploring blockchain is part of the current "growth strategy". But even blockchain has not done that well either. according to CB Insights, only 2% of the blockchain startup companies went on to a fourth round of funding compared with 14% of the tech companies.

The problem is not that different from the coin. “There aren’t really many users of blockchain protocols beyond speculators and traders,” as one analyst puts it.

The First 30 and 180 Days

If after reading this post, you still want to try the next red hot ICOs, the two researchers at Boston College did recommend all investors should probably sell their coins within the first six months and that the strongest return is actually in the first month. if possible.

Apple Going into Cheaper IPhones

2018-06-17T23:59:00.000-05:00

By EconMatters

The news out on Friday that Apple will focus more on the cheaper LCD (liquid-crystal displays) than the more expensive OLED (organic light-emitting diode) screens in its fall rollout of phones illustrates that even Apple consumers have finally balked at $1,000 phones. The IPhone X release this past year was the first Apple IPhone with the OLED screens, and it obviously hasn't sold well, or Apple wouldn't be offering the majority of their product mix this fall with the cheaper LCD screens.

However, this points to another problem for Apple, Samsung Galaxy phones have had the better OLED screens for over 7 years, and with a much more competitive price even at the high end of the market. In short, Apple cannot make an OLED screen phone for the $700- $800 max threshold that consumers seem willing to pay for a phone, even a high end smartphone.

This is the problem with Apple products in general, when you compare Apple to the competition, even at the high end for laptops, smartphones or tablets you pay much more for less product specs. It isn't even style differences anymore as high end lightweight laptops have all morphed into the same sleek design architecture, but you will pay $1000 more for an Apple laptop with far less specs than the top of the line laptops on the market. Apple has marketed themselves as the high end status brand in the market, but the flop of the IPhone X illustrates that even Apple fans have their limits to brand versus price considerations. 1,000 dollars for a smartphone has proven to be too much for consumers, regardless of the logo on the device.

We have seen this economics lesson play out at the pump with gasoline prices, as consumers seem to have real problems with $4 a gallon gasoline prices, which starts changing behavior in the market from driving patterns to automobile purchases. Thus, it appears that $1,000 for smartphones is the equivalent to $4 a gallon gas prices, and weakening demand starts to gain traction in the market.

The real question for Apple is why they cannot make an OLED smartphone for the same price as Samsung at the high end? It just finally illustrates once and for all that Apple products are overpriced, and Apple IPhones are inferior products to Samsung smartphones at the high end. Samsung makes a better quality smartphone with better product specs at the high end, and does it for a cheaper price.

There is also talk that Apple will offer some IPhones priced in the $550 and $650 range going forward, and indicates what we have been saying all along, that the next strategic advantage in the ever maturing smartphone market will be price! As a technology becomes mature, fully commoditized, with little product differentiation, the price wars begin, and prices and margins start coming down in a definable category trend. The next front for market share wars at the high end will be price, who can offer the same commoditized smartphone features at the best price!

The other thing I noticed in the Apple news on Friday is that since the fall models will not be a major new product refresh, Apple is offering a bunch of slightly different, cluster of incremental IPhone upgrades that is highly cannibalizing and confusing for the IPhone brand in general. This strategy has been trending for apple with the last 3 generations or so of the IPhone, and seems to finally be hitting the ridiculous stage. This seems a little like a company in desperation mode to try and squeeze a little more juice from the dried up marketing lemon, because they really don't have much new to offer on the creative and engineering side of the equation for the next IPhone upgrade!

This again points to the commoditization and mature market nature for smartphones in general, and why consumers don't need to go and upgrade for the next smartphone every year, two years, or even three years. Consumers will hold onto their smartphones longer as the new upgrades offer very little premium upgrade value over existing smartphones given the price factor for a new high end smartphone of $800-$1,000. If you want to sell the equivalent number of smartphones as in the past Apple, you better start lowering the price. Otherwise, Apple can keep the same high prices, and just sell much fewer phones going forward.

Remember all the hype by analysts and investors regarding this new anniversary release of the IPhone, going to be a real game changer, frankly it has been underwhelming to say the least. And it illustrates that even Apple consumers are price sensitive in the end!