By the time the 3 is delivered Tesla will have burned through all their federal credits and competitors will still have theirs. I am about positive that the 3 will not arrive before late 2018, the ASP will be over $50K, the standard mass market EV will have 200mile range and be available at a 'cost' (subsidized) of 25k to $30k.
The 3 is just the future luxury electric car.
I hope for smart comments too. I understand much but there is SOOO much to know.
Convertibles are essentially just contracts. The terms vary widely so it almost takes a trusted team of lawyers to make a smart bet.
I suspect we will have to wait until the prospectus comes out to even start the analysis.
That position costs over 20%/year to maintain, for several years, and the conversion spread is another what 30%?
This looks unattractive to me compared to unwinding the short between today's price and maybe 20 to 30% higher.
That position would payoff big only if TAXI went Bankrupt but the convert was senior enough to take equity -a very fine line and only pays off in leverage compared to direct short of TAXI common. It's a dumb bet, that only 'wins' in rare instance through higher leverage.
When TAXI filed for the ability to raise capital I was livid! I sold a significant percentage of my holdings.
Now I see how this could be a great move!
So the convert provides capital that can be leveraged (what, ~8X or so?) to cheap FED borrowing. It can be bought back at 30% gain or more after a few years.
Does buying the convert make any sense for the shorts? Just off the top of my head I think TAXI just announced $25M of #$%$ capital -it's a great deal to anyone but the shorts because they are paying higher interest and need a lower price to cover profitably. This all but assures that TAXI will grow earnings and dilute taxi business as a percentage of those earnings. An no common shares will be issued!
Thanks Mort! I had heard during the '09 bank crisis how the FED was treating equity -it counts as capital but it has 'zero' cost because there is no requirement to pay dividends. Convertibles are the same. This is the entire reason for convertibles -senior to all equity, maybe some debt. to get low interest rates, but div. is discretionary so it counts as much as equity but 'costs' the same zero on the FED borrowing sheets.
HEY MORT! Can you explain something to me.
We were talking on another thread about TAXI share buyback and this Convertible issuance. I have a theory that regulators count equity as a buffer in their capitalization calculations -ie if TAXI buys back common shares regulators cut the maximum amount of cheap money leverage TAXI can borrow from the FED. This is why TAXI is issuing convertibles when logically they should buy back cheap common shares. TAXI has proven they can grow consumer lending profitably and away from stagnant taxi lending -but they must grow to do this. Buying back common cuts this growth and just leverages the bet against the shorts.
I trust that this convertible will result in improved credit spread, but I don't trust management will communicate how (why start now).
I agree completely with your direction -buy back high yielding shares while moving image away from taxi biz the market hates. But A.M. has consistently favored growth over investor value. I think it has something to do with how the regulators view capitalization. Regulators see equity as a buffer -if the company buys back shares regulators cut the amount of cheap borrowing they can do from the FED. If you look at the run since the earnings report this is confirmed. This is counter intuitive, and theoretically wrong, but it is REALITY. Shorts know it, management knows it, small investors are left in the dark.
Perhaps Mort knows how banks are regulated and can confirm or refute.
The bottom line is that I expect that this convertible issue greatly expands the companies access to cheap money. I think I need IR to explain it to me.
For the record, I have been saying it is due to the shorts limiting their exposure -they are no longer willing to spend big to sell to manipulate the shares down whenever the bid gets thin. I am surprised how little they have done to keep the price from floating back up. I wonder if they will get bold again now that we are getting closer to book value.
I have always said that it will be very difficult for the shorts to cover because they were the volume pushing down.
This is THE thing to watch for loan quality.
This is particularly interesting in light of the price cut uber initiated in Jan. The claim at the time was that the price cut would increase revenue (for uber obviously not the drivers) during a seasonal low. I suspect that it is BS like EVERYTHING uber says, and that uber will continue to screw drivers, cutting pay relentlessly! Drivers are beginning to get employment rights and unions are thrilled to campaign against uber -it's the greatest target for them since child labor! The next step is regulation of 'ride shares'.
At any rate it begs the question -why does uber need to cut prices at the same time taxis are increasing revenue? My answer is that it has nothing to do with rides and everything to do with projecting growth to support the uber ponzi scheme. uber has never made a profit but always issues more equity claiming growth. uber is still unprofitable but growth stopped last year -a fact they need to hide.
CMS, you need to read mort's post about short interest -it is far more expensive than you think for a company that pays a 14% dividend and is so thinly traded. Because it is such a big income stock it tends to be held in 'cash' accounts that can not be loaned to shorts. Scarce shares mean that brokers can charge big bucks in fees and interest to short TAXI shares.
Being thinly traded among slow income oriented investors made TAXI easy to manipulate down, but it is a brutal share to HOLD down and the WORST POSSIBLE stock to exit a short position. We were at 40 days to cover at last report, and that was BEFORE the earnings report when the shorts sold big to defend their position. Prices rising and volume dropping!
that is a widely believed lie. I specifically asked multiple brokerages I had accounts with and all of them told me that the only way to keep your shares from being loaned is to hold them in a 'cash' account. If you read the fine print in your margin agreement you will find the shares are not technically yours and your rights and responsibilities are limited to your contract with the broker and mediation -like a mortgage on a home.
A sell order on your shares does nothing and technically they have three days to find replacement shares AFTER you sell. In practice, enforcement of naked shorting rules are nearly nonexistent leaving the brokers a fantastic opportunity to charge for compliance with minimal burden of actual compliance. This is what I was trying to tell you in my post above.
that is interesting. It makes me think of a recent article I read about an investigation into broker behavior in shorting. The article noted a fine paid by a broker for charging for a service it did not perform -that service being locating and borrowing shares to short.
When an entity wants to start a major short campaign they need a lot of services -kind of like an investment banking team but inverted. The unique part is the broker has excellent information about where the shares are, and the customer (short) knows next to nothing! The shorts only alternative is to ask another broker who has no incentive to tell them squat and every incentive to use the information to trade against them. The bottom line is that big shorts pay big fees. It's like they are playing poker but they are the only ones who have to show their cards at all times.
So the shorts would be paying 17.5% just to cover the 14% dividend? I would be surprised if they are paying less than 25% for the shorting, plus significant fees, and I would be surprised if it was not a highly levered bet with premium margin interest.
I would sure like to believe that there are literally no more shares to loan and short, but based on the last report and volume traded I would say we are only around 25% of float short, certainly not past 30%. I think the shorts were in pretty deep going into earnings and shot their load the day of the report. The selling stabs have been lacking volume and there is no follow through -nobody is buying their BS! Rather than a lack of shares to borrow I think the big short is getting close to a margin call or at the very least realizing that it will be a long expensive position to maintain. My suspicion is that money for this short comes DIRECTLY from uber in an effort to screw taxi companies by attacking their finances. uber needs money elsewhere and can not slush money to dirty tricks like it used to.
In the latest short report the shares short as of 2/12 were down slightly to 3.5 million but the days to cover skyrocketed to 40 X average days volume! That was 2 days before the earnings report and the monster volume spike up. Past pattern suggests that there was big short selling to defend/ward off a short squeeze so look for it to be up next report. The peak on the earnings report was in the $8.3 range and we are seeing high volume today as we return to that level.
So my read is that the short covering was quite limited prior to earnings and that short interest has increased significantly since. The standard short attack story post earnings was quite lame and ineffectual. Looks like the shorts will see a big dividend bill! I would not be surprised if they let out another big squeal before they have to pay!
check out NY post story '2016/02/22/uber-got-complaints-about-michigan-shooter/'
Regulators can not let uber slide after this one...