Tesla Motors is Paying Back Its Government Loans Early

The company just sold convertible bonds to repay the government loan - five years early - and is selling about 2.7 million shares of stock to raise about $260 million more. Elon Musk, Tesla's founder, chairman and CEO, is also buying $100 million worth of stock personally, a move designed to show he's so convinced the stock will rise that he's betting his own money on it.

How refreshing to see such a success story financed in part by the same government program as solar panel maker Solyndra, which had gotten a $527 million loan guarantee and went bankrupt, and electric car maker Fisker, which is on the verge of bankruptcy and owes the U.S. government more than $180 million.

Paying back the loan will get Tesla Motors out from under any potential stigma of joining GM as a so-called Government Motors, a captive of the administration that funded it.

The Obama administration loan agreement included warrants to buy almost 3% of Tesla's shares - 3.09 million of them - for $7.54 a share, according to SEC filings. By repaying the loan, Tesla gets the warrants back before most of them vest.

"What Tesla has Accomplished Isn't Luck"

Meanwhile, analysts have raised ratings on TSLA stock, which also plans to develop an SUV and a lower-priced sedan.

Morgan Stanley analyst Adam Jonas reiterated his "Overweight" rating on Tesla Motors while increasing his price target from $47 to $103.

"What Tesla has accomplished isn't luck, it's real," he wrote Wednesday.

And the success starts with the Model S, a first-rate luxury car that continues to win rave reviews.

Priced at around $70,000 for the basic version, the car has dispelled fears it wouldn't sell. In fact, in the first quarter the Model S outsold the top three German luxury brands, the Mercedes Benz S Class, the BMW 7 Series and the Audi A8.

Tesla Motors also disproved critics' claims it would fail when it turned profitable in the first quarter of this year.

Betting against Tesla has proven to be a lousy strategy.

With the stock up over 100% in just the past month, Tesla has enjoyed an extra push from panicked short-sellers (as of April 30, 44.1% of TSLA shares were sold short) rushing to cover their positions.

In the end, the Tesla Motors story shows that for all the failures of the stimulus, the blind squirrels in Washington were able to find at least one juicy nut.

It seems almost as unlikely as turning my pumpkin-like Prizm into one of those Model S's that hits 133 mph within a quarter mile on the test track.

Maybe the old jalopy will have a second life yet.

Related Articles and News

• Money Morning:
  Obama's Latest "Bad Bet' is About to Cost Taxpayers $180 Million
• Associated Press:
  Ahead of the Bell: Tesla Motors gain on debt plans
• Business Insider:
  What Everybody Got Wrong About Tesla
• Bloomberg Businessweek:
  Ahead of the Bell: Tesla Motors gain on debt plans
• San Francisco Chronicle:
  Tesla Raising Cash to Be First in Repaying Green-Car Program
• The Wall Street Journal:
  Tesla Is Selling More Shares To Pay Off U.S. Loan

The IPO was a costly reminder to retail investors "that the playing field is not a level one, Mercer Bullard, a securities law professor at the University of Mississippi School of Law told MarketWatch.

"Some investors got more information than others. Those that didn't, ended up perhaps buying more Facebook stock than better-informed investors left on the table," he said.

Facebook stock has yet to recover.

Four months after the fabled IPO, shares bottomed at $17.55. The stock found some stability in the mid-20s range, and currently trade around $26.40.

Now at the one-year mark, most hopes for a comeback have vanished. Will year two be even worse?

Facebook Stock Year Two

When Facebook went public, its message was "we focus on user growth and engagement and the revenue will take care of itself." 

Obviously, that hasn't been the case and Facebook is trying to get it right.

In efforts maximize profit potential from its massive user base, Facebook launched a number of initiatives since its IPO, including an e-commerce store, gift registry, pay-for-post program and Facebook Home, a software for smartphones.

However, one month into its release, Home is already labeled a failure.

Facebook stock has reflected these disappointments.

Year-to-date, the Dow is up 16.2%, the S&P 500 has added 15.7%, and the Nasdaq is better by 14.8%. Meanwhile, Facebook shares are down nearly 10%, with shares 30% less than the IPO price.

First quarter 2013 financials, released a few weeks ago, were mixed.

While revenue grew 38% year-over-year to $1.46 billion, aggressive moves to monetize its 1.1 billion users who are increasingly accessing the site via mobile, are eating away at desktop ad revenue-its real cash cow.

In addition, Facebook's Website lost 10 million visitors in the U.S. over the past year, market research firm Nielsen reports.

Also falling is the number of minutes Americans spend of Facebook. The average time in December was 121 minutes; in February, it dipped to 115 minutes, according to comScore.

While smartphone minutes doubled in a year's time to 69 a month, that growth is no guarantee it will compensate for diminishing desktop usage.

Additionally, the switch to mobile comes with conundrums. Facebook must figure how to size ads to mobile, how to avoid overwhelming users with commercials, how to guard privacy and keep users engaged.

Facebook is also losing some of its swagger. The younger crowd no longer finds it "cool," and is defecting to rival sites like Tumblr and Twitter.

Facebook even acknowledged the challenge of keeping teens engaged it its annual 10-K filed with the SEC in February:

"We believe that some of our users, particularly our younger users, are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook. For example, we believe that some of our users have reduced their engagement with Facebook in favor of increased engagement with other products and services such as Instagram. In the event that our users increasingly engage with other products and services, we may experience a decline in user engagement and our business could be harmed."

So, Happy Anniversary, Facebook... we're not buying your stock, but we wish you the best.

Facebook stock's one last chance?: We recently learned of a new development at Facebook that is giving the company one more chance to turn things around. We asked the person who would know best - our resident Internet marketing expert - if the new Facebook Exchange could actually revive the flailing Facebook stock. Check out his inside scoop here.

Related Articles:

• Money Morning:
  Facebook Stock Rises Despite These 852 Million Reasons to Fall
• Forbes:
  Leaning Down: Facebook's Stock At Its IPO Anniversary
• The Guardian:
  Facebook profits rise despite drop in US visitors to its website
• MarketWatch:
  Why Facebook IPO is an unfriendly reminder of IPO risk

Three Housing Stocks to Buy in 2013

California-based Standard Pacific Corp. (NYSE: SPF) is a homebuilding and financial services company operating in California, Florida, the Carolinas, Texas, Arizona and Colorado.

In its recent earnings report the company said it has enough inventory to meet 5.6 years of demand at the current pace. The company is seeing strong growth in both new orders and total backlog and should grow at a fairly rapid clip as its markets continue to recover.

Eisman also likes real estate developer Forestar Group Inc. (NYSE: FOR). The company currently owns 136,000 acres of real estate projects as well as substantial oil, gas and timber acreage.

Wall Street's one-year price target on Forestar is $28 - a 16% premium to where it's trading now.

But Eisman's favorite housing stock to buy, the one he called the "most powerful" play on housing, is Ocwen Financial Corp. (NYSE: OCN). Eisman said Ocwen, which trades at $44 a share now, is "completely mispriced."

The company originates and services mortgage loans both in the United States and abroad. The company's earnings have more than doubled in the past year due to acquiring Homeward Residential Holdings Inc. and mortgage lender ClearPoint.

Ocwen has more than tripled its book of mortgage servicing business - and is far from done buying. Management believes that there are still substantial opportunities in the aftermath of the mortgage crisis and plans to take advantage by growing the servicing portfolio.

Eisman believes this will allow the company to increase earnings at a rapid clip and the stock is the single most leveraged way to play the recovery.

Interestingly the day after Eisman's presentation, billionaire investor Leon Cooperman also suggested buying the stock as way to profit from an improving housing market.

For more stocks to buy in 2013 from the Ira Sohn conference, check out this look at the best investments in the energy sector to come out of last week's meeting.

How the Sequester Is Costing Jobs

To bickering pundits in Washington, the sequester seems like an abstract economic concept that may knock a point or two off the gross domestic product (GDP). 

But on Main Street, the pain is real.

Medicare providers that offer Advantage plans (Part C) and prescription drugs (Part D) felt the effect of the cuts right away because they get paid by Medicare on the first business day of every month.

Meanwhile, payments for services under Medicare Hospital Insurance (Part A) and Medigap Insurance (Part B), will take longer to trickle down through the system.

And while Medicare payments will be slashed by a relatively small $3 billion this year, budget reductions will lop off a whopping $123 billion from 2013 to 2021, according to the Congressional Budget Office (CBO).

That means healthcare employment will be taking a big hit.

According to a study released by the American Medical Association, the American Hospital Association and the American Nurses Association, job losses will soon spread like a virus across the economy.

Healthcare-related industries will lose more than 496,000 jobs in just the first year of the sequester, and the number of lost jobs will reach 766,000 by 2021, the study said.

The damage will be widespread, with hospitals and physicians' offices experiencing the worst losses, followed by dentists, nursing and residential care facilities and diagnostic labs. Suppliers will feel the pain later.

The nursing profession may be in for a particularly rough ride.

Nursing facilities say they are planning to lay off more than 20,000 registered nurses, licensed practical nurses, certified nursing assistants, therapists and other staff, according to a survey by The Alliance for Nursing Home Care.

More than half said they plan to reduce benefits, and roughly 75% said they will modify wages.

Sequester Strikes Medicare Cancer Patients

Meanwhile, the sequester cuts have created a crisis for cancer patients on Medicare.

You see, under sequestration, the government reduced funding for chemotherapy and other drugs critical to cancer patients.

In fact, the entire 2% reduction must come out of oncologists' overhead for storing and administering the drugs.  That puts a significant burden on cancer clinics.

"When I look at the numbers, they don't add up...we can't stay open if we don't cover costs," Ralph Boccia, director of the Center for Cancer and Blood Disorders in Bethesda, MD, told the Washington Post.

Clinics that remain open will likely be forced to drastically reduce the number of patients they see.

North Shore Hematology Oncology Associatesin Long Island, NY, recently announced that one-third of their 16,000 Medicare patients would have to seek treatment elsewhere, according to the New York Daily News.

Most will turn to hospitals, which may or may not have the capacity to meet the increased need. That means some cancer patients may simply have nowhere to turn.

On top of that, patients fortunate enough to find a nearby hospital to treat them will pay an average of $650 more per year for treatment, according to the actuarial firmMilliman Inc.

Some patients may not be able to foot the bill.

"People that can't afford their medications just don't take them ... and they wind up dying," cancer patientHelen Jeton-Mantooth told the Center for American Progress.

Sequester Cuts Add to Costs

What's more, the government's attempt to save money by cutting Medicare may actually backfire when everything is said and done.  

The Milliman study says the government could pay an average of $6,500 more per year for cancer patients in a hospital versus a community clinic.

So not only will some cancer patients will be left out in the cold - American taxpayers will end up paying more.

But if Medicare patients think things are bad now, they'd better buckle their chin straps.

When Obamacare launches full force in 2014, it whacks Medicare with $41 billion in additional cuts-on top of the current sequester cuts of $9 billion.

For more on how the sequester is affecting your money, read our report: Sequester Circus Proves How Much Washington Hates America

Related Articles:

• Money Morning:
  The Sequestration Follies: How Washington Outsmarted Itself
• Medicare News Group:
  A Primer on Sequestration and the Impact on Medicare
• Washington Post:
  Cancer clinics are turning away thousands of Medicare patients. Blame the sequester.
• New York Daily News:
  Sequester cuts will slash cancer clinic cash for elderly Medicare patients
• Center for American Progress:
  Medicare Reductions Are Hurting Elderly Cancer Patients

Not All REITs are the Best Investments for Yield

To gain an idea of how overvalued some of the securities have become let's take a look at the largest U.S. REITs.

Simon Property Group Inc. (NYSE: SPG) is the largest REIT owning retail shopping centers and malls. In the past three years, the shares have more than doubled as money in search of yield flowed into real estate related investments.

As the economy and real estate markets have improved so have results for the company.

Rents and occupancy rates have been rising as consumers and businesses have returned to malls. As pleasant as that sounds, the problem comes from the fact that investors have noticed the solid results and decent yields and pushed the shares to unsustainable levels.

The stock currently has a market capitalization of $55 billion and more than $22 billion of debt for a total enterprise value of about $78 billion. That is two-and-a-half times the total assets owned by the company - and extraordinarily high level.

The shares fetch more than 50 times earnings and 20 times the expected funds from operations the company hopes to earn in 2013.

More troubling from an investor's point of view is the fact that institutions own more than 95% of the shares. Over 8% of the company is owned by those potentially pesky Japanese REIT funds.

When REITs eventually fall out of favor, the exit door will be very crowded and the price decline is likely to make the 2.56% yield seem even more paltry than it is in reality.

This is not to imply that Simon is a bad company or does not own a portfolio of premier malls. The company did not get to be the largest REIT because of bad management or poor properties.

The problem is the price. Yield-seeking money flows have pushed the price far higher than the actual value the company and the properties.

The same is true of many of the other large-cap REITs and investor should exercise caution until prices return to more reasonable levels.

For a more detailed look at why not all REITs are the best investments for yield, check out the REIT names that Money Morning Global Investing Strategist Martin Hutchinson called "the most dangerous."

The actual doctrine has been official policy of America's Congress, successive presidents and their administrations, and the alphabet soup of regulatory bodies for as long as anyone can remember.

But a funny thing happened on Tuesday.

Someone pushed back...

Sen. Elizabeth Warren (D-Mass.) sent a letter to the Justice Department, the Federal Reserve and the Securities and Exchange Commission.

It was a short letter (you can read it here on Mother Jones). The jist of it was, how come you guys always let banksters settle and never take them to trial?

She summed up her letter by reservedly pointing out, "If large institutions can beat the law and accumulate millions" - I'm not sure why she didn't say billions - "in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law."

You go, Elizabeth! Only, someone might want to tell her... too big to jail is the law.

Anyway, one day later, yesterday, the always beleaguered Eric Holder (because he's always been out of his league) said this: "Let me be very clear, there's no bank, there's no institution, there's no individual that cannot be prosecuted by the U.S. Department of Justice. We have had thousands of financially based cases over the last four years."

In other words, completely changing his story.

You go, Eric... hopefully into retirement. Try Mexico, they like you down there.

Then there's this IRS scandal.

Who knew the IRS was an arm of government? I thought it was an extortion arm of the mafia.

But lo and behold, the IRS acts on behalf of the government, which apparently includes terrorizing conservatives.

Yesterday the acting IRS Commissioner, Steven Miller, stepped down amid accusations the agency was giving extra scrutiny to conservative groups who applied for federal tax exemptions.

That's not very nice.

I'm just glad the IRS is two-sided. They impact the President's friends and family, too. Everyone apparently gets theirs.

The President's half-brother certainly "got his" from the IRS - in the form of a very special favor.

A few years back, the Prez's half-brother, Abon'go "Roy" Malik Obama, also the best man at his wedding, set up the Barack H. Obama Foundation to solicit tax exempt contributions (for what, no one really knows).

Only there was little problem. Roy Boy didn't set up a 501(c) tax-exempt entity.

In May 2011, the national Legal and Policy Center filed an official complaint against the non-entity entity.

No worries. The IRS was all over it.

One month later, on June 26, 2011, in record time (just ask any of the conservative groups waiting three years and longer for an IRS ruling on their tax-exempt status), the Foundation was granted tax-exempt status... retroactively (unheard of!) back to December 2005.

According to The Daily Caller, "In addition to running his charity, Malik Obama ran unsuccessfully to be the governor of Siaya County in Kenya. He was accused of being a wife beater and seducing the newest of his 12 wives while she was a 17-year-old school girl." Nice guy. Sure glad they helped him out.

All I'm saying is that it's good to be an American, or not, or a bank, or 501(c).

Have a nice day.

Related Articles and News:

• Money Morning:
  The Great Rotation Makes Stocks a Generational Buy
• Money Morning:
  The Next Bank Meltdown Won't Be an "Accident"
• Money Morning:
  What You Absolutely Need to Know About "Their Paper Money"
• Money Morning:
  What Everyone Absolutely Needs to Know About Money

Why Gold is Down

Wednesday, the greenback hit its highest level against the euro since early April.

The U.S. Dollar Index, a measure of the dollar against a basket of major currencies, has climbed 5% year-to-date--a major move in currency terms. And, since gold is priced in U.S. dollars, it has become appreciably more expensive for foreign investors. 

Money Morning Global Resource Specialist Peter Krauth explains, "The U.S. dollar is a continuing headwind for gold, and virtually all commodities for that matter, thanks to its recent surge. I think one main reason is the strength in U.S. stock markets. Likely, foreign investors, both retail and institutional, are jumping on this bandwagon, and buying U.S. stocks.

"That requires U.S. dollars," Krauth continued. "So they first need to sell their currencies to buy dollars, and then put them to work in the markets, creating extra demand for U.S. dollars. As well, a cascading Japanese Yen has some looking for cover under the greenback."

The Dow Jones Industrial Average on Wednesday posted its twentieth record-setting day of 2013, and the Standard & Poor's 500 Index finished at its fifteenth fresh high for the year. Meanwhile, the Nasdaq is trading at lofty levels not seen since October 2009.

Yet, even as benchmarks march towards resistance levels, bulls maintain equities still have upside.

Citigroup Inc.'s (NYSE: C) top equities analyst Tobias Levkovich remains in that camp, but warns of retracement.

"We would expect some pullback during the summer as fears of a paring back by the Fed, European economic disappointment and a potential debt ceiling fight in the (U.S.) come together," Levkovich wrote in a note to clients.

showed inflation (government-reported, that is) remains tame.

The producer price index, which measures price changes before they reach consumers, dipped in April for the second consecutive month as the cost of gasoline and vegetables fell sharply. The 0.7% read marked the biggest drop in more than three years.

Some economists say wholesale prices may fall further as declining prices for many commodities work their way through the supply chain. Slowing manufacturing could also drag prices lower.

However, lower wholesale costs don't always translate into lower prices. While companies modify prices for several reasons, they rarely cut them unless demand wanes or competition increases.

The Golden Constant

As the old adage goes, "Gold takes the escalator up and the elevator down."

Indeed, on April 15, gold plunged 9%, to $1,360.60, its steepest drop in some three decades. Over the next three weeks, the precious metal tacked on about $100 amid frenzied buying of jewelry, coins and physical gold at prices not seen since early 2011. But the upward momentum was short lived.

Down 17% year-to-date, Krauth cautions "the worst may not yet be over," adding "mind your trailing stops."

With that in mind, stop to consider gold's pause follows 12 consecutive years of unbroken gains.

And while inflation has been slow to materialize, the ongoing liberal money printing at global central banks is sure to drive demand for gold as an alternative to paper currencies, eventually propelling gold higher-much higher.

Related Articles:

• Money Morning:
  Three Reasons to Buy Gold Stocks Today
• Money Morning:
  In Gold, Not Cyprus, We Trust
• FOX Business News:
  Dow Logs Record Close for 20th Time in '13
• MarketWatch:
  U.S. wholesale prices fall sharply in April
• Kitco:
  Gold Ends Lower, But Up From Daily Lows, Bears in Control

Student Loans Hurt the Young - and the U.S. Economy

Outstanding student loans now exceed $1 trillion, which put them ahead of all other forms of household debt except home mortgages.

That's triple what student loan debt was in 2004; and the number of Americans burdened with student debt, nearly 39 million, is 70% higher, according to the Federal Reserve Bank of New York.

And unlike other kinds of debt, bankruptcy does not release the obligation to pay back a student loan.

The stubbornly high unemployment rate has played a role as well. It's hard to pay back student loans when you have little or no income, and the unemployment rate for those 18-24 is an alarming 16.2% - more than double the average for the general population.

And it's starting to bite. A recent Harris Interactive survey of student loan borrowers found that 75% had made personal or financial sacrifices to keep up with their monthly student loan payments.

That, in turn, is starting to harm the U.S. economy. Young people struggling to pay back student loans consume less and postpone buying homes - vital catalysts to the economic recovery.

Congress Can't Be Trusted to Fix Student Loans

Miraculously, most in Washington agree that the interest rate on student loans should be lower, and some would like to see the billions in profits used to help students in danger of default.

But since everyone has a different idea on how to achieve the goal, there's a real possibility that no agreement will be reached and the student loan interest rate will increase to 6.8%.

House Republicans and President Barack Obama both have plans that would use a variable rate based on market rates but each uses a different formula. Both also have caps, but the Republicans would cap rates and the White House would limit payments to 10% of discretionary income.

Congressional Democrats would offer more relief to those who need student loans. One proposal would freeze the interest rate at 3.4% for two more years.

The most radical idea comes from Rep. Elizabeth Warren, D-MA, who has proposed that the government offer student loans at 0.75% - the same rate big banks get from the U.S. Federal Reserve discount window.

But even if lawmakers are somehow able to reach some sort of compromise solution, it's unlikely to change the fact that the government is making tens of billions in profits every year from student loans.

"Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt," Ethan Senack, the higher education advocate at the United States Public Interest Research Group, told The New York Times. "The revenue from student loans should be used to keep education affordable, and should never be used to pay down the deficit or for other federal programs."

For more on just how frightening the debt picture is that stems from student loans, check out The Scary Reality of the Student Loan Bubble in 5 Charts.

Related Articles:

• Money Morning:
  The Frightening Financial Crisis Facing Young Americans
• Accounting Today:
  Congress Offers Different Fixes for Student Loan Interest Rate Hike
• The New York Times:
  Student Loan Rate Set to Rise, Despite Lack of Support
• Huffington Post:
  Obama Student Loan Policy Reaping $51 Billion Profit
• Marketwatch:
  What's more profitable than Exxon or Apple? The government's student loan program
• Miami Herald:
  House Republicans, White House look to change student loan rates