A Tesla short-seller had an epiphany, but the ridiculous epiphany is that he realized that central banks are going to mostly engineer low-interest rates for decades. This is what should be embarrassing. There have been negative interest rates in Europe since 2014. Interest rates have mostly been below 1% in Europe since about 2009. Japan has had negative rates since 2016. US has had low rates since 2009. This guy Carson Block had to have a dream last week to realize that interest rates will stay low for decades. Low rates for decades is a revelation that he went onto the cable finance news channel CNBC to declare.
He also said that Tesla would thrive but ignored how Tesla is already very profitable. Tesla had over $900 million of net income in Q2 without credits. Credits from competing automakers. Tesla will add 10,000 Model S in Q3. $1.3 B more revenue. More model 3 and Y too. Extra $2-3 billion in revenue in Q3. More growth in Q4. 30% margin cause they had 28.4% in Q2 mostly without S and X. $1.5-2 B in net income in Q3, $3-4B in net income in Q4.
Carson Block bent the knee to Tesla because he realized that Tesla can raise all kinds of money with its high market capitalization.
This was after Tesla raised $5 billion in December 2020 for less than 1% dilution. Tesla has had about $20 billion in cash since December 2020. Tesla is down to about $5 billion in debt.
Plenty of other analysts predict near zero or negative interest rates out to 2050.
2019 article in Bloomberg reviews a decade of low interest rates.
Nextbigfuture covered Federal Reserve chair Jerome Powell making promises about years of low-interest rates. There can be blips of higher interest rates to quash inflation but Central banks will keep rates low or negative because of the hundreds of trillions in national, state and corporate debt.
SOURCES – CNBC, Bruegel, Bloomberg
Written by Brian Wang, Nextbigfuture.com (Brian has shares of Tesla)
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
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But that just turns the problem into good old-fashioned tax avoidance. An issue that governments have been dealing with for millenia.
The tools used to fight tax avoidance are manifold. At the very least you can crank up the proportion of tax on real assets like real estate and purchases like cars. You can't hide hide a house in an encrypted file. It's visible on google maps.
“IF” they catch you using the currency and not paying taxes.
I would imaging that many many millions of $$$ has been spent procuring whatever and little if any tax has been paid.
For that reason, I think the crypto market is to risky for this old engineer to invest in.
(Part 3)
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Thing is (and this is rather important), the 'fiat money' created by paying the interest coupons and the face note at maturity are paid for with NEW, previously uncirculated coin-of-the-realm.
This adds to the uncertainty of The Money in the future, you know? It puts the brakes on just printing away like a LSD addled forests-to-lucre factory.
What does (not in the News, but in the Real World) the higher interest do, from any of the interest-tipping factors that go into each Tuesday's auction?
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First, when real interest rises, it trickles down to banks' savings instruments; they, ultimately being competitive with the bond sellers, nominally like to attract savings to pwer their own operations. So, rising BOND interest drives them to offer increased payouts for nominal savings.
Second, with № 1, this increases the cost of borrowing. The loans which ultimately pay for ALL their operations. Corporate customers feel the squeeze. They raise prices of products to accomodate the higher costs of money to make 'em.
Third, with № 2, this in turn trickles down further to consumer prices. For everything. Which begin to rise in ways impossible to overlook. Gas, food, rent, education, medicine, entertainment … go up.
Economists call this INFLATION.
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Nuff for now.
⋅-⋅-⋅ Just saying, ⋅-⋅-⋅
⋅-=≡ GoatGuy ✓ ≡=-⋅
(Part 2)
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So, here's the point, inverted: Let's say there is a big unpopular war going on, which for sovereign posturing is being promoted by the Present Administration and the Pölïtical Party interests surrounding them.
Unpopular.
Unpopular and being rioted-against in the streets.
Low level mayhem.
What does such a situation portend to the VALUE of the money being printed by The Fed?
It imples instability in the future, and a need for sovereign bonds to bear higher REAL interest to cover 'the odds' of everything going pear-shaped. RISK. Risk needing a better reward for having taken it.
∴ bond prices decline at auction. To yield higher REAL interest.
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Or, say a period following a big stupid war, a time of returning peace. People celebrating on the streets, business looking up, lots of expected new business due to the relaxing of civil disobedience.
∴ bond prices increase, because the outlook is good, and the national currency looks like a sure-thing from a safety perspective. REAL interest declines in turn, balancing demand against more limited supply.
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And so on.
(End part 2)
So… hmmm…
I know a lot of all y'all are tired of my infrequently repeated UC Berkeley Economics 301 lectures results, but they are relevant to the conversation, and to the modes-of-thinking expressed broadly (as with the article AND many of the comments so far).
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Interest, as a guidance of national policy, is 'set' by The Fed.
It is printed on the paper (US Bonds, US Treasury Notes) themselves.
Once printed, never does it change.
REAL interest however is established when the notes are auctioned off …
Every Tuesday, at each Federal Reserve issuing bank. SF, NY, Chicago, etc.
Notes have no set price. Market demand, confidence, trust determines it.
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So, for example, if Fed announces 2.5% yielding 20 year notes at next auction,
… which nominally carry a face value of $1,000,000 apiece
… … but the action settles at $800,000 per,
THEN the 'real interest' is (complicated calculation) 4.34%
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See? The BUYERS at the auction can realize a higher effective long term interest by what they collectively decide is the right and fair price, today, of the paper. Indeed, the 'face value' is of no consequence, other than a starting spot for the auction, and to establish what the at-maturity return value will be.
(end Part 1)
Quite correct zombie corporations can stay alive instead of getting out of the way.
And somehow, this guy who believes in his dreams, is managing and investing hundreds of millions of other peoples money?
Thank you, no.
Eventually Reality will intrude.
For the last decade baby boomers have been saving large amounts of their salaries for retirement. Soon they will retire and that savings will turn into consumption. And, Trillions of foreign investment has been pouring into North America from Asia. Especially the trillions coming from China has been 'get out of Dodge' money. And now, the Chinese are getting serious about currency controls.
At the same time investment lead expansion is drying up, consumption lead expansion is becoming impossible because of the disappearance of 20 something and 30 something consumers from the demographics.
Low or zero interest rates are like heroin for economics. Companies can be like zombies for a long time being maintained alive while inflaction turn the not awared people more and more poor like the story of the frog in the boiling water.
Government cares more that they can’t print crypto. No more Prima Nocta with the currency.
That was quite an epiphany he had that a company with a $700B market cap, 50% annual revenue growth and $20B in the bank might be able to avoid bankruptcy longer than he can afford to keep shorting it.
Any national government can, and long has, made it mandatory to need that nation's currency.
Because you need to pay taxes in that currency. And if you don't pay taxes you get locked in prison.
So you need that currency.
they still can stop it. Just mandate KYC requirements when you get in and out of crypto. And transaction audit.
Now it's too late to stop it. They had a chance to make it illegal in 2017 but now there is too much institutional money into it
[clap] [clap] [clap]
What Will governments do when they find out people start using a form of currency that that cannot regulate?
When people no longer need or want the almighty dollar?
Gonna be interesting how the crypto financial market gets integrated into, (or out of), society.
What can't go on forever, won't.
“ There can be blips of higher interest rates to quash inflation but Central banks will keep rates low or negative because of the hundreds of trillions in national, state and corporate debt.”
And there you have it. Central
Banks won’t raise interest rates because of government debt. Raising interest rates would destroy budgets because debt servicing would eat the budget.
Crypto to the moon!
Fiat is moving towards irrelevancy but the transition for governments to a stable currency will be painful. Governments will have a very difficult time finding money for all the things they promise.