Tesla Raises Cash - Yellow Vest Protests - Bankrupt US Farmers

TESLA RAISES CASH

Last week, in the editorial, BOOM wrote regarding the electric car company Tesla ….. “the company will have to raise more capital via a further share issuance or bond issuance sometime in the next 2 years, depending upon sales growth”. Hey presto, Tesla made an announcement soon after on Thursday and another announcement on Friday, that it was issuing fresh new bonds and shares to raise a possible total of $ 2.3 Billion in new capital.

The share price rose 8.46% for the week on this news but, at the close of trade on Friday, it still had not recovered the previous week’s opening price. This burst of enthusiasm was presumably based upon the fact that the capital raise was underwritten by a group of major banks.

This action will bring some relief to the worrying decline in Tesla share price since early December. But will it be enough to carry the company forward to positive cash flow? Car manufacturing is a very capital intensive business. The big competitors will soon launch their full attack on this market and then it will become more difficult for Tesla to dominate the sector. Watch this space. Investors will have to be brim full of confidence that Tesla can beat off the likes of VW, Mercedes Benz, Toyota, GM, Ford, Nissan, Porsche, Audi and the new car companies from China.

INTEREST RATE SETTINGS -- YELLOW VEST PROTESTS

The Federal Reserve and the Bank of Canada did not raise their interest rates last week, preferring to keep them on hold. Over the last 2 weeks, the central banks of the US, Canada, Hungary, Armenia, Russia, Sweden and Turkey have all kept their key interest rates on hold.

This is no surprise to BOOM and BOOM readers. The low growth, low CPI inflation, low interest rate world established way back in 2008 is persisting just as BOOM has said many times. This is the Brave New Economic world in almost all advanced economies of the world. Almost all politicians and central bankers in those economies have not yet worked that out. They continue to forecast, in optimistic terms, a “return to growth” and a “watchful eye on the risk of rising CPI inflation”. BOOM is not aware of any that say the opposite. The politicians, in particular, also have very optimistic expectations of taxation revenues continuing to increase as they did in the long era of economic expansion from 1945 to 2008. BOOM wonders how long it will take before the political class have to level with the people and finally admit that they cannot “create jobs and economic growth”. Trump in the USA is being protected from the truth by the effect of massive deficit spending. But the US central bank, the Federal Reserve, is aware of this dynamic and they are much more wary now of predicting increased growth and CPI inflation.

The Yellow Vest people in France are ahead of the game. They have realized that everything has changed and they are out on the streets every weekend protesting that the capitalist plus welfare economic system no longer works for them. The Yellow Vest protests have now been ongoing for almost 6 months with 4,000 injuries, including severe eye injuries, and 15 deaths occurring.

In the UK, the Brexit Party will put the Government to the test in the European elections in three weeks time. The outcome could be very embarrassing to the Conservative Party. Again, it appears that the people following Nigel Farage have woken up to the fact that their democracy is not functioning as one representative of the majority’s wishes. Economic hardship and uncertainty is almost certainly a driving force in this protest movement just as much as in France.

BANKRUPT US FARMERS

Meanwhile, in America, there are record numbers of farmers moving into bankruptcy. In seven of the large farming states, the bankruptcy rates are at their highest levels since the financial crisis in 2008. Farm incomes fell by almost US$ 12 Billion over the last year. Farm aid payments from the federal government amounted to just $ 7.7 Billion.

“We’re doing trade deals that are going to get you so much business, you’re not even going to believe it,” Trump said in a meeting of farmers in New Orleans earlier this year. Since then, things have just gotten worse.

The Agriculture Fund ETF (DBA) that is traded on the New York stock exchange has declined in price from $ 29 in 2014 to $ 16 now. That is a 45% fall in prices. DBA tracks an index of 10 agricultural commodity futures contracts.

CHINA 5G EXPANSION

The high tech Hub in China, Shenzen, is building about 7,000 5G base stations this year. The city also plans to launch 5G for commercial use by 2020. 5G Smartphones and 5G tablets will be launched gradually from the middle of 2019. The city is also actively promoting the deep integration of 5G with other technologies and products to build a cluster of 5G industry.

5G technology is fifth-generation mobile telephone technology. Its operational speed is designed to be much faster than the current technologies (2G, 3G, and 4G). Higher upload speeds, faster download speeds, lower costs and application to the Internet of Things (IOT) will drive the 5G technology market.

In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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