As I mentioned in the introduction, I think that Tesla
has been one of the biggest beneficiaries of the low interest rate policies
that have been introduced since early 2009. It has given Elon Musk the
opportunity to fund his dreams. Is this a bad way of spending money? That`s the
question i`m asking myself all the time. Would you rather have a company that
borrows billions and spends it on low quality ride-sharing bicycles (i`m
looking at you oBike), or one that spends it on reinventing and optimizing the entire
car industry, the space exploration industry and so on? I think it`s very clear
that IF equity bubbles and low interest rate policies keep on coming back every
decade or so, there should be more people like Elon Musk who put that cheap
money to good use, even if his companies would go bankrupt during a reversion
to the mean of these interest rate levels. (Or if he would be arrested for
trying to hurt short sellers by making false claims).
How messy is the current situation at Tesla right now? There are tons of charts out there, that all tell a great story about all the things that are going wrong with Tesla right now, but I guess the below chart is sufficient for now. If this capital bleeding keeps on going at the current pace, it`s lights out before the end of this year.
How messy is the current situation at Tesla right now? There are tons of charts out there, that all tell a great story about all the things that are going wrong with Tesla right now, but I guess the below chart is sufficient for now. If this capital bleeding keeps on going at the current pace, it`s lights out before the end of this year.
Already,
rating agencies like Moody`s have analysed that 60% of businesses in the US
have a “speculative” rating, also known as “junk rating”. When you look at the
debt itself, 56% of it is rated “medium grade”, which is only 1-4 levels above
the junk rating. Since 2009, this medium grade debt has increased by about 10%
per year, to USD 4.1 Trillion.
So, all this new debt is being used to
make investments and increase R&D, right?
Yes, this would normally be the case. It would then result in higher profits, of which some will be put into higher employee wages, some in investments, and some in dividends. However, as shown in the consumer chapter earlier, employee wages have been stagnant for decades, and cumulative investment growth has been at the lowest level than any other economic expansion since the 2nd world war.
Yes, this would normally be the case. It would then result in higher profits, of which some will be put into higher employee wages, some in investments, and some in dividends. However, as shown in the consumer chapter earlier, employee wages have been stagnant for decades, and cumulative investment growth has been at the lowest level than any other economic expansion since the 2nd world war.
To give you
an idea of the size of this “scheme”: During the 60`s, shareholders would
receive roughly 1.7% of the US GDP in dividends and share repurchases. Right
now, it`s closer to 4.7% of GDP. That is a difference of roughly USD 570
Billion a year.
All this debt
eventually has to be paid back. As shown last month, in 2018 less than USD 100
Billion of junk debt and leveraged loans are being paid back. In 2 years, that
number will already increase to USD 250 Billion, growing all the way to USD 600
Billion by 2022, and staying at that level for the next 3 years.
Many
companies will not be able to pay off their loans and will ask for refinancing.
This refinancing however, will be done at a much higher interest rate, which
can then cause a wave of bankruptcies.
“The
real danger with debt is what happens if lots of people decide,
or are forced, to pay it off at the same time”
- Paul Krugman -
The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in this publication is that of the publisher and is subject to change without notice. The information in this publication may become outdated and there is no obligation to update any such information.
The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in this publication is that of the publisher and is subject to change without notice. The information in this publication may become outdated and there is no obligation to update any such information.