Fund Manager: How Is Tesla Different From Enron?

Dave Kranzler says Tesla is the poster-child for the entire US economic and financial system. Here’s why…

Answer:  It’s not. The longer I observe the Elon Musk/TSLA show – and the more I research in-depth the Company’s business model and financials – the more I’m convinced that there’s a striking similarity between Enron and TSLA. The graphic below was sourced from @TeslaCharts on Twitter (with my edits):

By now, I’m sure many of you have seen the report from a Twitter sleuth who discovered a huge fenced-in, gated lot in Lathrop, California where literally thousands of Tesla Model 3’s were being “stored” (@IspyTsla). Recall that Musk had set producing 5,000 Model 3’s by the end of June (Q2) in a week as a holy grail goal. A report from an anonymous insider who works on the production line stated that Musk ordered skipping a critical brake test in order to meet the production goal. Sheer insanity.

A subscriber to my Short Seller’s Journal who designs and builds electrical testing equipment for the auto industry told me that automotive plants shutdown rather than let their stuff go out the door untested. He said it happens quite frequently.  Tesla’s key operational executives have been leaving the Company like survivors jumping off the Titanic.  The latest to leave is the head of sales. Now we know why.  Tesla has entered an irreversible death spiral.

This accounting of Tesla brought back instantly my memories of shorting Enron in early 2001. The stock had been a high-flier and ran up with the tech bubble. The Company had supposedly fused together energy management technology and a Wall Street-style trading floor operation that was supposed be a huge money-generator for the Company. I recall reading some reports that Enron was using off-balance financing and LLC gimmicks to manufacture profitability.

After going thru Enron’s 2000 10-K with a fine-tooth comb, I determined that Enron’s balance sheet was a ticking time-bomb and I shorted the stock. I rode my short from the $40’s to under $15. Obviously I covered to too soon. But little did I know that it would emerge after Enron hit the wall that it had erected a fake trading room at its Houston headquarters. Upper management would have employees man the desks and phones when Wall Street analysts or big investors visited. The entire operation was a scam.

But how is this any different from turning out operationally flawed cars and storing 1000’s of them in a vacant lot? An analyst from Needham & Co reported that, based on his checks, Model 3 refund requests are outpacing deposits and order cancellations are accelerating. A year ago the refund rate (vs orders) was 12%. The analyst believes the refund rate has doubled. I was wondering when the refund rate would begin to place additional stress on Tesla’s liquidity. I believe it is quite likely TSLA will need to admit before Thanksgiving that it has raise more capital. That’s when the real fun for shorts begins.

Enron was able to get away with the fraud it was perpetrating for several years because of the complicity of its auditor, Arthur Andersen. I believe a similar relationship exists between Tesla and Price Waterhouse. There are just too many areas in Telsa’s financials where GAAP accounting standards are pushed beyond the limit of the so-called “gray area.” The irregularities span the entire income statement and balance sheet – from revenue recognition to expense capitalization. The latter enables Tesla to hide current expenses and debt.

Tesla will report Q2 numbers on Wednesday, August 1st after the market closes. In my opinion, shorting TSLA or buying long-dated puts has become unavoidable. In my latest issue of the  Short Seller’s Journal, I share my ideas for using puts to make a bearish bet on Tesla or how to manage the risk of shorting the shares outright. At some point, it will become unavoidable for Tesla’s largest shareholders to liquidate their holdings. It’s a massive breach of fiduciary duty lawsuit waiting to happen.

Just like Enron was emblematic of the fraud and stock market mania that defined the tech bubble, Tesla is the poster-child for the entire U.S. economic and financial system. Like Enron and Tesla, the U.S. is defined by debt, fraud, corruption, greed, entitlement and a blatant disregard for humanity.

by Dave Kranzler of Investment Research Dynamics

And... Yet Another Wells Fargo Banking Scandal

Is it Friday again? Must be time for another banking scandal!

Seriously– these banking scandals are happening with such regularity and predictability it would be almost comical. . . were it not for the millions of people who have had their lives turned upside down.

The latest transgression involves, once again, our old friends at Wells Fargo.

Bear in mind that the ink isn’t even dry yet on the $1 billion check that Wells Fargo wrote last week as a penalty to settle its previous scandal, where they defrauded 570,000 clients in a car insurance scam.

By the bank’s own estimates, as many as 20,000 of those clients may have had their vehicles repossessed as a result of their inability to pay for the car insurance that Wells Fargo illegally stuck them with.

And speaking of vehicle repossession, in November of last year Wells Fargo came under fire for illegally repossessing vehicles that were owned by members of the military.

In October, Wells Fargo took heat from federal regulators after it was found that the bank had deliberately recommended investment products that were “highly likely to lose value. . .” Early that month, the bank admitted that it had ‘erroneously’ charged late fees to more than 100,000 borrowers, even though the delays were the bank’s fault.

In 2016, a number of employees at various Wells Fargo branches in California were found to have sold sensitive customer information, including Social Security Numbers, to a ring of identity thieves.

And of course, in late 2016 and all throughout 2017, Wells Fargo’s notorious ‘fake account’ scandal was found to have affected millions of customers.

There’s a word for all of this: fraud.

And if you or I had committed any of these acts by even the slightest, we’d be wearing DayGlo Orange jumpsuits in a federal penitentiary.

But a grand total of ZERO executives from Wells Fargo have been sent to prison or faced any charges whatsoever.

In fact, the executive who was found to be the most culpable in the fake account scandal scored a whopping $67 million severance package when she left the company in late 2016.

And the new CEO (who took over after the fake account scandal in 2016) has been rewarded with a 35% pay increase even though both the stock price and the bank’s profits have languished.

Scandal #867,241 just hit the news yesterday afternoon: Wells Fargo is now being investigated by the United States Department of Labor. This time the bank is accused of deliberately pushing customers into more expensive, higher-fee retirement accounts– accounts that are bad for the customers, but more lucrative for the bank.

It just never stops with these people. And it’s not just Wells Fargo.

Nearly EVERY major bank in the world, from JP Morgan to Barclays, Citigroup, UBS, Bank of America, etc. has been found at some point or another over the last several years of grossly violating the public’s trust.

Yet we consumers still willingly let these criminals hold our money.

Month after month we deposit our paychecks and hold our savings in an institution that rarely misses an opportunity to prove that they cannot be trusted.

They’ve been caught manipulating asset prices, colluding to fix interest rates and exchange rates, and engaging in irresponsible lending practices that put our savings at risk for their sole benefit.

They treat customers with such contempt, scrutinizing even the most innocuous transactions as if WE are the criminals.

And when they screw it all up, gambling away our hard-earned savings on some idiotic investment fad, they go to the taxpayer with hat-in-hand claiming that they’re too important to go out of business… and then shower themselves with record bonuses.

Our reward for putting up with all of this abuse? Well, according to BankRate.com, interest rates at the biggest retail banks (Wells, Bank of America, Chase, etc.) average just 0.01%.

This banking system so pathetic.

Yet we’ve all been institutionalized, practically since birth, to believe that we HAVE to use it… that there’s no alternative.

And that used to be true several decades ago. But in 2018, there are countless alternatives.

Literally every single function of a bank can be performed better, faster, cheaper OUTSIDE of the banking system.

Rather than holding your savings in a bank, you can literally earn more than 150x as much interest with extremely short-term Treasury Bills. Or if you want, you can even hold physical cash.

For loans, there are dozens of websites where you can crowdfund a home loan or small business loan.

And for retirement accounts– the latest Wells Fargo transgression– you DEFINITELY don’t need a bank.

Retirement accounts are one of the biggest areas where banks and major financial institutions routinely bilk their customers out of useless and unnecessary fees.

Even if they’re not charging you a fee outright, they’re diverting your retirement savings into some fund that they control and taking a percentage or two away from what you should be earning.

And over a period of several decades (we’re talking about retirement after all), a single percent difference in your average investment return because of bank fees can add up to hundreds of thousands of dollars.

So it’s a pretty big deal.

The reality is there are SO many ways to properly structure your retirement in better, more robust, less expensive ways.

For example– if you qualify, a solo 401(k) is an extraordinary retirement structure that’s cheap to administer and incredibly flexible.

With a solo 401(k), you can contribute tens of thousand of dollars each year to your retirement, as well as invest in a variety of assets that are not available to traditional plans (like real estate and private equity).

And you can even borrow money directly from your retirement plan under certain circumstances.

Self-directed IRAs are also great structures with similar benefits, though they have slightly higher costs and less flexibility.

Bottom line, there are plenty of options on the table to distance yourself from this abuse.

Submitted by Simon Black of Sovereign Man