When Bad News Is Overblown

  • Bad news comes in threes for Tesla…
  • … but the worst news is overblown: A reality check on “driverless cars”
  • Gold’s great first half — and not just the metal’s price
  • Ill omens from the credit markets: Lenders clamping down
  • Early signs of “war and revolution” in Saudi Arabia, six months after our forecast
  • A risk-off day… wide-ranging reader reaction to our sunspot episode… subversive ideas like “not spending more than you make”… and more!

It’s been a very bad, no-good, terrible two weeks for Elon Musk’s electric-car company, Tesla Motors (TSLA).
On June 21, Tesla bid $2.8 billion to buy another Musk company, SolarCity. Musk called the deal a “no-brainer.” Traders thought otherwise and instantly cratered TSLA stock 13%.
Over the holiday weekend, TSLA disclosed continued growing pains. “Tesla Motors missed its vehicle delivery target for the second consecutive quarter,” says the Reuters newswire, “and is on track to fall short of its annual target, suggesting the U.S. electric carmaker is still wrestling with production issues as it looks to transform itself into a mainstream, high-volume manufacturer.” As we write, shares are down 3% on the day…

Credit where it’s due to the Agora Financial editors. On the “long” side, Jonas Elmerraji recommended TSLA to Penny Stock Fortunes readers in October 2010. He recommended selling on June 14 — a week before the spate of bad news began to break. It was good for a clean 1,000% gain.
On the “short” side, TSLA put options are soaring for readers of both Jim Rickards’ Intelligence Triggers and Agora Financial’s Catalyst Trader. In addition, readers of David Stockman’s Bubble Finance Trader bagged a 135% gain on Tesla puts in less than four months last February.
Curiously, Tesla shares rose last Friday despite the worst news of all — or the story that grabbed the biggest headlines, anyway: The government revealed the first death of someone riding in a self-driving car.
Tesla is in the forefront of the push for “driverless cars.” The company is conducting extensive tests of an “Autopilot” feature on its Model S. Tesla enthusiasts have volunteered to try out the system on the road. Now one of them, a 40-year-old Ohioan named Joshua Brown, is dead.
“He was killed May 7 in Williston, Florida,” says The Associated Press, “when his car’s cameras failed to distinguish the white side of a turning tractor-trailer from a brightly lit sky and didn’t automatically activate the brakes, according to statements by the government and the automaker.”
Now for a reality check.
In the first place — and at the risk of “blaming the victim” — it’s possible Mr. Brown was taking the “self-driving” thing a bit too literally. State troopers say a portable DVD player was found in the car, and they’re investigating whether it was on. The driver of the semi that hit the car says it was and he could even see it playing a Harry Potter movie.
“The autonomous mode is meant to handle some, but not all, driving situations,” says CNN. “The software isn’t perfect, and Tesla advises human drivers to keep their hands on the wheel at all times, and to stay alert.”
Then there are the cold statistics. “This is the first known death in over 130 million miles of Tesla Autopilot operation,” writes Ronald Bailey at Reason. “For reference, the Insurance Institute for Highway Safety calculates that in the U.S. there are 1.08 deaths per 100 million vehicle miles traveled.”
In addition, a Virginia Tech study commissioned by Google estimates that vehicles driven by people crash 4.2 times per million miles traveled. For self-driving cars, it’s 3.2 times per million miles — “a safety record that’s likely to keep improving,” says Mr. Bailey, “as robocars gain more real-life experience on the roads.”
“So far, the evidence points to self-driving mode being safer than with a human doing the job,” affirms Ray Blanco of our science-and-wealth team.
“Our cars will soon become some of the most powerful computing devices we own… and they will use that power to take us safely where we want to go. This will be the biggest change in ground transportation since the invention of the automobile.”
News emerged recently that Intel wants in on the action. “Intel has missed the boat on other tech trends, like the smartphone boom,” says Ray, “but it appears the company isn’t going to let the smartcar market slip away. It has teamed up with BMW for self-driving technology development in future electric vehicles.”
As usual, Ray’s interest in path-breaking technology isn’t in the “obvious” names like Tesla or Intel. He’s more interested in the niche players that make the technology possible. His pick in the space in Technology Profits Confidential is up 19% in a little over two months.
Ray takes the same approach to the burgeoning virtual reality field. No Facebook or Samsung for him; he’s going for the smaller players that make VR happen. You can find Ray’s intro to VR — and access to Technology Profits Confidentialat this link.
So much for that run at Dow 18,000; it’s another “risk-off” day.
On Friday, the Dow industrials closed 50 points shy of the 18,000 level — a spectacular four-day recovery after the severe two-day swoon brought on by the Brexit “surprise.”
But it’s a new week, and as we write, the index has shed 100 points. The S&P 500 is taking an even bigger hit, off three-quarters of a percent, at 2,087. The Nasdaq and the small caps are taking it harder still.
Gold pushed past $1,350 overnight, although it’s pulled back this morning to $1,343. The yield on a 10-year Treasury note is sinking deeper into record territory — 1.37% at last check.
It’s not just gold that came on strong during the first half of 2016 — so did the assets in ETFs backed by gold.
The total at the start of the year was 1,458.1 metric tons. That’s risen by more than a third — 500 metric tons — to a total of 1,959.1 as of last Friday, according to Bloomberg.
Thirty-seven of those 500 tons came just last week after the Brexit vote.

Before you add to your own gold ETF holdings, you should know the gold market is presenting a once-every-decade opportunity right now — and you won’t be able to exploit it with either ETFs or bullion. Jim Rickards says it’s the best-kept secret in the markets right now… and he blows it wide open when you click here.
Tales of tightening credit…

  • The value of bonds backed by personal, corporate and real estate loans has fallen 37% year over year, according to Asset-Backed Alert, a newsletter that tracks the “shadow banking system.” High-powered investors are shying away from these bonds. Good luck to consumers and businesses — especially the owners of commercial real estate — hoping to refinance
  • “Jumbo” mortgages made up 24% of mortgages approved last year by six of the biggest U.S. banks, says The Wall Street Journal. Only three years earlier, it was 12%. Banks like jumbos — typically for homes worth more than $417,000 — because there are fewer regulatory hoops to jump through.

If easy credit is the lubrication that keeps the U.S. economy from seizing up altogether, these developments together don’t bode very well, do they?
The news from Saudi Arabia over the weekend brings us back to the first prediction we rolled out from the Agora Financial team at the start of the year.
“We’re going to see revolution in Saudi Arabia, we’re going to see war in Saudi Arabia,” said Byron King.
Yesterday, suicide attackers struck three times — outside a mosque in the Shia-dominated city of Qatif… outside the U.S. Consulate in Jeddah… and, most significantly, near the Prophet’s Mosque in Medina, Islam’s second-holiest city, after Mecca.
In two of the bombings, the attackers were the only ones killed; in the third, the bomber took out four guards. No one’s taken responsibility, although suspicion has fallen upon ISIS.
The timing is interesting. Aside from it coming during the holy month of Ramadan, it comes amid rumors that Saudi Arabia’s Prince Mohammed — the 30-year-old power behind King Salman’s throne — is maneuvering to become king by the end of the year.
Not that any of this news is having an impact on the oil price: In fact, crude is down nearly 4.5% as we write, a barrel of West Texas Intermediate fetching $46.85.
And for the record, U.S. oil reserves now exceed those of Saudi Arabia and Russia, according to research by the Norwegian firm Rystad Energy.
The United States has 264 billion barrels of “recoverable” reserves — meaning it’s feasible to drill, both technologically and economically. Russia comes in No. 2, at 256 billion, and Saudi Arabia is third, at 212 billion.
Chalk it up to the shale revolution: “There is little potential for future surprises in many other countries, but in the U.S. there is,” says Rystad analyst Per Magnus Nysveen.
“Are you guys dropping acid up there?” says the first of many reader reactions to our episode last Friday.
Another: “You said, ‘For decades, there’s been a niche of analysts who see a link between sunspots and events in the economy and markets.’
“These same events happened every time someone’s heart beat, which is just as reliable a gauge as your notions using astrology. Come on, guys, take the moon out of romantic equations, take the sun out of world events. I’ll put my goat entrails against your sunspots any day.”
The 5: Aw, c’mon! We said at the outset we were going to have a little fun going into a holiday weekend. Surely, you expect more from us than day-in-day-out drudgery over Brexit and Fed policy, no? It wouldn’t be The 5 otherwise…
“This topic has been studied and theorized for decades, and I believe there is a connection,” writes a reader who’s clearly more receptive to our periodic forays into terra incognita.
“So no more global warming. But take heart — we still have ‘climate change’ so the
busybody bureaucrats can continue to overburden us with ridiculous legislation aimed to combat something we have no ability to change or even fully understand.
“Your sunspot analogies seem comforting, but your chart doesn’t go back far enough to indicate what might really happen with no sunspots.
“Roughly, the years 1400–1800 had few, if any, sunspots. Before that time, monks were intrigued that a small hole in a window blind would project an image of the sun on a wall. They were concerned that ‘the face of God’ would have blemishes (sunspots), so kept records.
“We call that 1400–1800 period ‘the Little Ice Age.’ That’s when the Dutch learned to skate on frozen canals, the Thames froze over and road houses were set up on the Baltic Sea ice between Germany and Finland. Carbon dioxide warming doesn’t cut it!
“Whatever the effect on the market, be careful what you wish for!”
“To be honest to your readers, you should report Covel’s trend following portfolio was up 1% on Brexit Day,” a reader chides.
“I am a subscriber. No complaints. It’s done great this year, but it’s not in the same league as his leverage friends.”
The 5: Duly noted. Yes, the trend following pros use leverage to generate double-digit gains in a single volatile day like the day after the Brexit referendum. Trend Following With Michael Covel adapts the pros’ trend following techniques to a plain-vanilla retail investor’s portfolio. We’re pleased to hear you came out ahead that day.
By the way, Michael’s readers have the chance to listen in to his monthly briefing three days from now. The topic: “Investing in a Post-Brexit World.”
It’s scheduled for this coming Thursday morning at 9:00 a.m. EDT. All Trend Following With Michael Covel readers have access. If you’re not among them, you can join their ranks here.
“Speaking of Obama and his professions of support for education/entrepreneurship,” writes our final correspondent, “why have not either the Republicans or Democrats made Finance 101 a mandatory course for all high school students?
“Would it not be a great service to our country and our youth to teach basic skills such as balancing a checkbook, not spending more than you make, learning the value of saving, compound interest and other basic finance education?
“In my high school, I signed up for a course, home economics. I was taught how I could buy a sewing machine and make my own clothes. If a course in home economics was an elective, why on Earth wouldn’t a course in basic Finance 101 be offered? That is a question I always wanted to address to Ron Paul.”
The 5: What? Teach kids how to avoid becoming debt slaves? And make their own clothes? Next thing, you’ll be suggesting people grow their own food in the backyard!
What kind of subversive are you, anyway!?
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. OK, you’ve probably heard by now: Hillary Clinton skates for the email scandal.
FBI Director James Comey tut-tutted this morning about how she was “extremely careless”… but “no charges are appropriate.”
Sorta makes us wonder what she told those FBI investigators when she met with them on Saturday… and whether they were sharp enough to spot when she might have been lying.
Because we’re acquainted with a former CIA officer, well trained to be a “human lie detector.” He’s compiled three examples of Mrs. Clinton lying during TV interviews. He can show them to you. Not to score political points, but to do something far more important.
“Once you know how to read body language,” he says, “then it’s possible to spot when ANYONE is lying to you.”
Watch — and learn a useful skill — when you click here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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