The One Video That Shows Exactly What We Have Lost With Our Political Tribalism

Sam Sheepdog and Ralph Wolf (looking suspiciously the same as Wile E Coyote) pound each other from 9 to 5 but can still be good friends in their personal lives.  Its just 2 minutes long but watch it and think about the polls showing a shrinking number of people are willing to be friends with someone who disagrees with them politically.

2019 Coyoteblog - Fintwit Bracket Challenge

In a tradition that goes back well over  a decade on this blog, it's time for our 2019 just-for-fun bracket challenge.  You know how it works -- fill out your bracket for the NCAA men's basketball tournament before noon Eastern this Thursday.  First prize  is lots of adulation and a 1 year free subscription to Coyoteblog.  Second prize is a two-year subscription.

We are using the usual scoring method -- 1 point for each correct pick in the first round, then 2 points in the second round, then 4, 8, 16 and 32.  This gives each round the same number of possible points.  In addition, there is a bonus for each game you correctly pick an upset equal to the difference in the two seeds, so there is some incentive to take a bit of risk with your picks.

This year's theme is the ongoing battle of Tesla bulls and bears ($tsla and $tslaq respectively).  You don't have to be part of that mess to play, but if you want to self-identify with a side, put it in your team name. If you need anonymity, you can use a fake name and make sure to check the box not to show your email address publicly.

It is totally free to play (I have paid the fees) and you can sign up and find our bracket here.  

http://www.pickhoops.com/TSLATSLAQ

Hollywood Nepotism Helped Beget the Admissions Bribery Scandal

It should not surprise us that the folks in Hollywood are disproportionately represented in those arrested in the academic bribery scandal.

The first reason for this is related to law enforcement -- if given a choice of investigating and arresting Joe Schmoe and investigating and arresting, say, Martha Stewart, the FBI is going to invest resources to take down the big name every time.

But the second reason is related to Hollywood itself.  I don't have stats on this, but I am willing to bet that, with the possible exception of politics, Hollywood is the most nepotistic industry in America.  Look at the IMDB descriptions of the actors, producers, and directors in some recent movie.  Some will be first generation talent out of nowhere.  But a huge number will be the Tori Spellings of the world, kids who got their start in part due to family connections.

In this sense, making it in Hollywood is very similar to getting admitted to Harvard -- they are both brutally hard and low likelihood events that have enormous payoffs.  So it should not be surprising that people in Hollywood, who every day see family connections being used to short-circuit difficult entry processes, would apply the same philosophy to university admissions.

I Thought the Media's Horserace Approach of Covering Elections Couldn't Get Any Worse Until...

... we somehow decided that the first 24 hour fundraising amounts had any meaning whatsoever.  All this means now will be that campaigns now will queue up a slew of "pre-commitments" for donations ahead of the official announcement date.  Bundlers will be operating months ahead of time like advanced scouts, further making a mockery of, uh, whatever reason we have for formal campaign announcements in the first place.

Boeing 737MAX Failure Analysis

This failure analysis from tweets by Trevor Sumner as picked up at Zero Hedge seem to fit the available facts -- Boeing called the problem as the wrong software response to an erroneous instrumentation input, clearly the angle of attack sensor.  It also fits my experience from my 3 years doing failure analysis in a refinery that most engineering failures are nuanced and results from multiple causes.  In short, a software fix was made to compensate for a basic design issue; and this fix could do the wrong thing when a sensor went bad, which it often does; and when airlines skimped on a redundant sensor and crew training, these shortcomings could be fatal.

Thinking About the College Admissions Bribery Scandal as Bootlegging Around A Cartel

In the college admissions bribery scandal that is unfolding (with almost certainly more to come), parents were willing to spend up to $500,000 for something whose list price is like $50 (ie the application fee).  When I see this happen, I immediately think that there must be some sort of artificial shortage.  After all, why wouldn't new suppliers jump into the market when such demand is apparently going unmet?

For years I have been pestering my alma mater to spend more of its endowment increasing capacity.  For example, several years ago I wrote:

...the Ivy League needs to find a way to increase capacity.  The number of kids that are "ivy-ready" has exploded over the last decades, but the class sizes at Ivy schools have remained flat.    For years I have been campaigning at Princeton for this, and I am happy to see they are increasing the class size, but only by a small amount.  Princeton has an endowment larger than the GNP of most countries.  To date, it has spent that money both well and poorly.  Well, because Princeton is one of just a handful of schools that guarantee that if you get in, they will make sure you can pay for it, and they do it with grants, leaving every student debt free at graduation.  Poorly, because they have been overly focused on increasingly what I call the "educational intensity" or the amount of physical plant and equipment and stuff per student.  In this latter case, we have got to be near the limit of spending an incremental $10 million to increase the education quality by .01%.  We should instead be looking for ways to offer this very high quality of education to more people, since so many more are qualified today.

To illustrate this point I used this example in another post on the same topic

Let's say an Ivy has 5,000 students and a 10 point (on some arbitrary scale) education advantage over other schools.  Let's consider two investments.  One would increase their educational advantage by 10% from 10 to 11 (an increase I would argue that is way larger than the increase from investments they have recently made).  The other investment would double the size of the school from 5,000 to 10,000 but let's say that through dilution and distraction it dropped the educational advantage by 10% from 10 to 9.   The first investment adds something like 5,000 education points to the world (5,000 kids x 11 minus 5,000 kids x 10).  The second adds  40,000  points to the world (10,000 x 9 minus 5,000 x 10).  It's not even close.  In fact, the expansion option is still favored even if the education advantage drops by 40%.

Here is a test.  Quick:  Name a well-known liberal arts college or university with a high academic reputation that was founded in the last 100 years.  Tick tick.  Give up?  The only one I can come up with is Claremont-McKenna.  When I started asking this question 10 years ago the answer also included Rice University, but it is now out of the window.  Compare that to top art schools -- some like RISD go back to the 19th century but CalArts and ArtCenter are both less than 75 years old and probably the hottest current art school SCAD is less than 50 years old.  SCAD is a great example.  SCAD is growing like crazy -- it owns half of downtown Savannah, it seems -- and has a great reputation despite its youth and despite its admissions policies that are far less restrictive than other colleges or even other art schools.   It is innovative and responsive to students in a way that few liberal arts colleges are.  It has clearly tapped into a huge unmet demand.  Why can't anyone do this in the liberal arts world??

The cynical view, which I lean towards more as I age, is that Ivy-type university degrees are all about signalling and not the education itself, and thus expansion just defeats the purpose because it dilutes the signalling value.  For years when I met gung ho kids who were impressed that I went to Princeton and depressed that they likely would not, I would tell them that Princeton differed from their state school in this way:  At your state school, you can get a really good education but you may have to work for it;  if you choose to slack, you won't get it.  In contrast, at an Ivy League school, you are going to get challenged whether you want to or not.  At least that is what I used to say.  I am not sure that is true any more of the Ivies, if it was ever true (I may have just been fooling myself).  We used to use "went to college" as a synonym for "educated", but I think that relationship is gone.  It's very clear you can go anywhere, Ivy League included, and fail to leave educated.

Some of my thinking on this was fast-forwarded given the experience of one of my kids.  We had classic suburban expectations for our smart kids, and were proud our daughter got into a top 20 university.  She really even then wanted to go to art school, but we worried she would end up living in a refrigerator box on the street with an art degree (well, not literally, but that was the family joke).  But after a year she hated the university**.  She did fine academically, but it wasn't what she wanted to do.  And after she took the reigns and worked on a do-over for herself at art school, I started thinking a bit more about it.  She works really hard at art school -- way harder than I or her brother worked in college -- and she is learning an actual craft that people value and pay for.  She has a heck of a lot more prospects on graduating than the Brown grad who majored in Ecuadorian feminist poetry.

I don't want to be disingenuous here -- I traded on the value of my degrees and the schools they came from until I was 40 (after that I was running on my business and they became largely irrelevant, even a bit of a handicap). But when I think back on what I gained most in my education, I would list these three things first:

  • The ability to clearly define a problem -- drawing a box around the system, defining inputs and outputs, etc
  • The ability to write (some examples on this blog notwithstanding)
  • The joy of learning -- at last count I have complete about 85 Teaching Company courses of an average 36 lectures each and 13 Pimsleur language courses of 30 lessons each.

By the way, if I had to define my main privilege in all of this, Princeton would not be first, because in fact I really developed the three above in a great private high school my parents were able to afford.

Postscript: Many have assumed these kids who got in fraudulently displaced some low income minority.  I find that hard to believe, knowing how admissions offices work and the general philosophical outlook of universities.  Much more likely that the marginal candidate cut was a midle class Asian-American.

** One of the interesting features of top schools is that it may be hard to get in, but they work to get every kid over the finish line.  That is why the real credential of an Ivy League school is as much admission as graduation.  To illustrate this, my daughter is in her third year at art school but her university she started at is still sending her emails saying that its not too late to come back.

Subtitles for One's Own Language? I Turn Them On All Them Time

The Wapo had a story about Danish theaters showing movies with subtitles, even for movies in Danish

In recent weeks, many Danish have finally been able to understand their country's actors again — thanks to subtitles.

According to European news site The Local, Danish actors were criticized for mumbling to such an extent that many moviegoers had a hard time following the story plot. In reaction to the complaints, cinema owners promised to provide people with the option to either choose movie screenings with subtitles or without. All films produced in Denmark will be available in both versions in the future....

Pedersen blames the necessity for subtitles on the evolution of the use of Danish in movies. Whereas in the past, actors were focused on articulating themselves in a way understandable for everyone, their main emphasis has now shifted to being as authentic as possible. Hence, many actors have chosen not to imitate more common dialects and have stuck to local versions of Danish. "It's a small country, but there are big differences between the Danish dialects," Pedersen explained.

I suppose this is supposed to be surprising but frankly at home I turn subtitles on for a number of shows that have dialog in English but have unfamiliar accents or dialects -- a range of shows from the Crown to the Wire.   I remember a cocktail party conversation with a group of white suburban liberals in which, after much alcohol, everyone admitted their secret vice of turning on subtitles for the Wire.

I have argued that another problem with dialogue is the way movie sound is mixed.  The dialog track can be overwhelmed with the other sound and music tracks.  This works OK in a theater with good acoustics and lots of sound absorption (e.g. those curtains on the wall) but is a disaster when it comes to showings at home where most living rooms are way more "live" than movie theaters.  The result is a lot of extra reflections and delays that serve to further muddy even well articulated dialog.

Also, to be honest, my tinnitus and too many rock concerts in the 70's and 80's probably play a factor too.

I Love the DisneyWorld Monorail. Here is Why It is A Terrible Public Transit Technology

The other day I got stuck in Orlando for a day and took the opportunity to sit it out at DisneyWorld.  Despite being essentially a walk-up guest, the hotel upgraded me to a beautiful room looking out at the Magic Kingdom and the lake in front of it.

The Magic Kingdom is an interesting public transit case.  It is located miles away, across a lake, from its parking lot and can be quite a distance from many of the Disney hotels.  So most everyone comes to the Magic Kingdom in some sort of mass transit.

The most eye catching is the DisneyWorld monorail.  This version, designed in the late 1980's but fairly similar in outline to the original early-70's version, is clearly beautiful.  When I talk about industrial design, I often use a scale where 1 is the Boston City Hall and 10 is the Disneyworld monorail.  Not only are the trains themselves beautiful, but the spindly monorail beams are clearly better looking than most any other overhead rail arrangement.

But what makes for a good theme park ride does not necessarily make for good public transportation.  Here is why:

  1. Monorails like this give up all the efficiency of trains.  Rail is efficient because the rolling friction of a flanged metal wheel on a metal rail is so much lower than, say, a tire on concrete.  But these monorails and most others ride on tires -- there is rolling friction of the tires on the top of the concrete beam as well as with the tires that stabilize the train on the sides of the beam.  These monorails are basically long busses up on a rail.
  2. Monorails have lower capacity per car than trains.  For stability reasons on the narrow beam, monorails must be shorter and narrower than most rail trains (even given the world's too-narrow rail gauge standard).  This means for roughly the same car length and weight, they carry fewer passengers.
  3. Monorails have the same downsides of trains.  They have capacity restrictions -- specifically they need much longer headways between trains for safety than busses do on the road.  And they are inflexible -- once you spend billions of dollars to put them on one route they are going to stay on that route.

As I sat on the lake, I could see all three modes of transit that Disney uses at the Magic Kingdom.  Both monorails and high capacity double-deck ferries run from the parking lot to the park, and busses run from most of the hotels to a bus depot at the park.  I could be wrong because it was not scientific, but I believe that the ferry boats had a lot more capacity per hour than the monorails -- particularly since Disney had to lengthen the distance between trains several years ago after an accident (yes, they actually have a single loop of track with no switching a couple of miles long and with perfect visibility ahead and they actually had a collision).

More telling is the fact that Disney has essentially abandoned the monorail for all its future expansions.  Yes, they built one to Epcot, but they have reduced service to one every 15 minutes or so and it brings in an absolutely trivial portion of the guests.  With its growing network of parks and hotels and all the possible point to point destination pairs, it relies on busses now almost exclusively for internal transport.

The Apparent Cash Crisis At Tesla -- Is The $TSLA Thursday Model Y Reveal Really Just a Stealth Emergency Financing Gambit?

I was listening this evening to the excellent Hidden Forces podcast on Tesla and they said something that really resonated with me -- its hard to discuss Tesla because there is so much crazy stuff going on:  A CEO who in many ways channels Donald Trump's worst characteristics; multiple SEC investigations, an ongoing contempt hearing; a story yesterday about thuggish behavior towards a whistle blower; strategic moves that are made, unmade, and then changed again in just a few weeks; astoundingly high turnover in management ranks, including an esteemed general counsel who couldn't hung around for even 60 days and then purged all reference to Tesla from his CV; fantastically passionate bull and bear communities; expansive promises that are seldom kept; outright fraud -- all in a company valued at $60 billion dollars and whose stock price rose 2% today under a barrage of negative news that would melt companies that have 100-year track records.  I have been meaning to do an update on Tesla but where to start?  How can I even bring readers unfamiliar with the story up to date?  I have started and stopped this article about three times, but now I am going to plow through and get something out.  If it is not entirely coherent and far from complete, my apologies.  If you want more, go to @teslacharts on Twitter as a starting point and you will discover a lot of really smart people who are, believe it or not, even more obsessed by the Tesla train wreck than I.

In the past I have limited myself to two issues.  The first is the outright fraud of the Tesla acquisition of SolarCity, another Musk company that was going down the drain until Tesla bailed it out.  The transaction appeared (even at the time) so transparently self-serving to Musk and his family that it just screamed fraud, and time has only made this clearer.  Musk sold the synergy-less acquisition to Tesla shareholders based on a solar shingle technology he portrayed as ready to go, but that still has not seen the light of day 2 years later.  In retrospect, it is crystal clear the solar shingle was a sham that was fraudulently hyped to make the deal go through.  This fire and forget approach to new product announcements has become very familiar at Tesla -- Musk scored extra subsidies from California with a battery swap technology he demonstrated one time and then has never been seen again, and Musk announced a new Semi truck and harvested a number of deposits for the vehicle and then has not even mentioned the product for months.  Since the acquisition, SolarCity new installations have fallen precipitously every quarter, demonstrating that Tesla had no real commitment to the enterprise, and this is only going to get worse as Musk announced that its last remaining sales channel is going to be closed.

The second Tesla issue I have tangled with is the strategic dead end that Tesla has reached, and the bizarre fact that a company in a capital intensive industry that is valued as a growth company has, over the last 12 months, virtually shut down R&D spending and now does less capital spending for its size than does even staid companies like Ford.  I won't cover all this ground again, I refer you to posts here and here-- If you are new to the Tesla story, start with these.   But in short, Musk made the fateful choice to take what was already destined to be an uphill climb for a new company to penetrate an extraordinarily capital intensive industry and made it an order of magnitude more capital intensive by his strategic decisions.  Specifically, Musk chose not only to start up car manufacturing from scratch, but to also build out his own sales and service network AND build out his own fueling network.  Kia was the last brand I can remember that penetrated the US market, and it only had to worry about investing in building cars -- it relied on third parties like Roger Penske and Exxon to build the sales, service, and fueling networks.  But Tesla is committed to building out all three.

This strategic decision really began to drag on the company in 2018.  Tesla's decision to do its own manufacturing -- in freaking California no less -- held back its growth as it spent years relearning auto manufacturing lessons already well-known to other players.  It has fallen behind in Model 3 production vs. its own stated goals and there is no apparent progress adding manufacturing capacity for a raft of announced but still theoretical products (semi, coupe, Model  crossover, pickup truck, revamped S&X).   A better approach might have been to contract for manufacturing like Apple does with the iPhone, especially since there seems to be a lot of excess capacity right now in Chinese auto production.  Even worse, as their fleet grew with the Model 3 ramp, Tesla was not able to invest fast enough to grow its sales, distribution, and service networks in proportion, leading to a lot of disgruntled customers that had bad delivery and servicing experiences.  The same is true for their charger network, where they have again not been able to keep up with investment and are now falling behind technologically as new entrants have faster charging times, times Tesla can't match without a major investment in upgrade of its network.  More manufacturing capacity, a better distribution network, more sales locations, more servicing capacity, more body shop capacity, more parts production capacity, more chargers and massive charger upgrades -- Tesla fell behind on ALL of these in 2018.

And then the really weird thing happened.  Sometimes growth companies fall behind when they grow to fast, but Tesla seemed to have stopped even trying to keep up with capital needs in the second half of 2018.  Their R&D fell, despite many promised new products that were a long way from delivery.  Their Capex levels fell to barely maintenance levels (what might be expected to just keep current plant running) and were reduced to levels as a percentage of sales that were lower than staid, traditional, non-growth auto makers.  Right when they really needed to make a capex push to make their strategy a reality, they stopped spending.

Tesla claimed, and claims to this day, that any slowdown is just the result of efficiency and responsible management.  But this is crazy.  Growth companies slow down and focus on profitability when the market is saturated and the growth phase is over.  Uber has not slowed down.  Even Amazon 20+ years in has not slowed down.  Slowing down is death for the stock price of a growth company, and Musk is -- if anything -- obsessively focused on the stock price.  Tesla is currently valued north of $60 billion. Without enormous growth expectations, a $20 billion valuation might be too high.  Added to this is the fact that after having the luxury EV market to itself for years, competition is finally coming from nearly every luxury care maker.  Tesla's 10-year moat is down to maybe 6 months.  It needs to be updating the S & X and rushing new products out ahead of competitors.  But they have almost given up on the S & X and Audi has beaten them to the market by at least a year and maybe two with a crossover model (the e-tron), a very popular format in the US right now.

And at first there does not appear to be any reason for this slowdown in spending.  Tesla has a stock that a dedicated group of fans gorge themselves on.  With a $60 billion valuation and a passionate fan base that thinks the company is still undervalued by at least a third, this company should be able to raise billions of capital easily.  They could theoretically raise $5 billion with less than 10% dilution -- Tesla almost dilutes itself that much every few years just from employee stock-based compensation.  Add its lofty valuation to what was reportedly $3.5 billion or so of cash on their balance sheet at the end of last year and consumer demand that the CEO describes as near-infinite, and this does not look like a company that should be slowing down.

How do we reconcile these facts  -- a near halt in growth investments despite lots of cash and a sky-high stock valuation?  Here are a few things going on under the surface:

  • While Tesla had over $3 billion in cash, they also had over $2 billion in payables.  The company has a reputation of stretching payables to the absolute limit.  It may well be that the end of year cash number was the result of a lot of window dressing.  In fact, Tesla skeptics have looked at the interest they earned on their free cash in the fourth quarter and have argued that for this number to be as low as it was, Tesla's average cash balance must have been much lower than their end of year reported number.
  • Savvy observers (of which I am not one) who know Wall Street argue that Tesla may well have either regulatory (e.g. SEC investigations) or practical (e.g. information they do not want to disclose in a prospectus) barriers to raising capital, and that the lack of a capital raise for many months can only mean that for some reason Tesla can't raise.
  • Tesla just had to pay off nearly a billion dollars in convertible bonds when the stock price was not high enough to trigger the conversion
  • Demand for Tesla cars in the US has fallen substantially in the first 2 months of this quarter.  Musk liked to portray the huge Model 3 sales ramp in 3Q18 and 4Q18 as the start of an S-curve, but now those quarters look more like a one-time bulge as Tesla blew through over 2 years in orders in just a few months.  Aggressive pull-forwards of demand by Tesla in the fourth quarter as well as the reduction in US and Dutch EV subsidies have also hurt.  [I have to add one note here just for color.  The Tesla fan boys have argued to me on Twitter that Musk has already explained this to their satisfaction -- that Tesla is diverting cars away from the US for their European Model 3 introduction.  This makes ZERO strategic sense.  What company ever enters a new market by giving up hard-won market share in their core market?  There is plenty of evidence that everyone who wants to buy a Tesla in the US is getting one with a very short lead time, implying this is a real demand drop and not Musk's typical supply-constraint story.]

A month or so ago I thought it very possible given these headwinds that Tesla may soon be facing a cash crunch if it cannot do an equity raise.  However, new events that have occurred over the last week convince me that this cash crush is almost a certainty.  There is no way I can explain Tesla's most recent actions as anything but a company desperately trying to stave off a near-term bankruptcy.  These actions include:

  • In early March, Tesla's February sales numbers in the US were announced, and they were a disaster.  Within mere hours of this reveal, Musk teased an announcement (on Twitter, where else).  This event turned out to be a quasi-secret invite-only conference call involving what appeared to be hand-selected media members who had historically been generous to Tesla (only a later uproar by bulls and bears alike forced Musk to release a transcript. On the call Musk announced two things --
    1. Tesla would begin taking deposits for the long-awaited $35,000 Model 3 (though delivery dates were hard to pin down).  Musk had said not too long ago that Tesla was not able to make this car yet profitably, and he refused to discuss margins on the vehicle.  Skeptics like myself suspected that the car can't be made right now for a positive gross margin, and instead this was a back-door attempt to gain new financing via customer deposits.  A couple hundred thousand (theoretically) deposits of $2000 each could yield some real money for a cash-strapped company.  The only thing Musk would say about controlling costs on this product was #2:
    2. In a totally unexpected (even to most of Tesla employees and management) announcement, Musk said Tesla was closing its stores and going to an online-only sales model.  This would supposedly save 6% of the cost of the new cheaper Model 3's, ignoring of course that SG&A reductions do nothing to fix a zero or negative gross margin.  Everyone, including most especially Tesla store employees and maybe even the Tesla BOD, was stunned.  Here is a company whose US sales are going over a demand cliff and they respond by ... eliminating their stores and sales force?
  • Simultaneously, Tesla has been announcing a series of price cuts on, worryingly, many of their highest margin products including the S and X and high-margin upgrades like paint and autopilot on the Model 3.  Almost no one can see how the company makes any sort of viable gross margin at these prices, and they have the look of desperation.  All these cuts did was aggravate buyers who had just paid the higher prices and who faced a suddenly lowered resale value for their car.
  • Within days of the store closing announcement, the WSJ and others published stories about how Tesla was unlikely to see much savings from these closures as their leases all had expensive cancellation clauses that Tesla could still be on the hook for as much as $1.5+ billion.  Incredibly, this seemed to come as a surprise to Musk and helped reveal just how slapdash these announcements were.  Since then Tesla has announced that maybe some stores would stay open and maybe some sales people would not be fired but just have their bonus eliminated.  As I write this, no one really knows what Tesla is going to do, but to many observers this move looks more like what one does in a bankruptcy than in the normal course of growing a business (in fact, bankruptcy is the one time lease cancellation costs can sometimes be evaded).
  • Tesla, furthering their management Abbot and Costello act, partially reversed their price cuts saying that prices would now rise a few percent, barely days after they were cut.  The net of the two announcements still result in vehicle prices substantially lower than in 4Q2018.
  • In an incredibly bizarre move (and there is a pretty high, or low, bar with Tesla for saying something is truly bizarre), it was recently revealed that Tesla last November bought a trucking company, or really they bought a bunch of trucks, with stock.  Essentially, this is a $60 billion company with supposedly $3+ billion in cash and they are paying their suppliers in stock.  Oh, and by the way, remember when I said above that Tesla had already vertically integrated too much and could not afford their capital needs already?  Well, this is yet another silly vertical integration.  Tesla has no business being in the trucking business, a highly competitive business with a lot of incentives to offer good deals and great service for an incremental bit of demand from a growing company like Tesla.  My sense was always that there is plenty of 3rd party trucking capacity out there, but that truckers just did not like serving Tesla because Tesla pays its bills so slowly and acts so unpredictably and imperiously.
  • Tesla continues to produce Model 3's near full volume (around 5500 a week, despite what the nutty Bloomberg model says) even given a fall in demand.  Tesla seems to be building inventory, and certainly the recent price cuts are not a sign they are supply constrained (as Musk continues to insist).  Tesla skeptics believe that Musk has signed a number of supplier deals where Tesla got rebates and price cuts in exchange for volume guarantees, and that Tesla is stuck over-producing cars or it will have to return a lot of money.  [update: @Paul91701736 who goes by Machine Planet on Twitter spends a lot of time observing and researching Model 3 production and says "there's one thing in this piece I can't agree with, a 5500/wk Model 3 production rate. I think ~4700 is the absolute max sustainable rate and it's been well below that most of the quarter"]
  • Tesla is asking customers in Europe, as they did late in 4Q18 in the US, to pay Tesla the full price of the car even before they see it or schedule a delivery.  Frankly, I am staggered anyone would buy a car this way, especially with the fit and finish problems Tesla model 3 customers have found on delivery.
  • Tesla added about $500 millon to its asset-back bank line of credit and continues to roll over some SolarCity debt.
  • When it was obvious that the Model 3 announcement had not created enough deposit activity, Musk then announced they would introduce the long-awaited Model Y crossover, in a reveal set for Thursday afternoon March 14.

Tesla has admitted that it still has not even decided where to build the Model Y, much less started building the plant and tooling up for it.  Given that, the car HAS to be 18-24 months away.  So why reveal now?  Remember that Musk and Tesla have a history of using new product reveals as fund raising tools.  The fake solar shingle product got Tesla to buy SolarCity.  The fake battery change demonstration got Tesla millions in added subsidies from California.  The complete vaporware Tesla semi reveal gained Tesla millions in deposits from corporations that probably didn't expect to ever get the truck but wanted to virtue signal their green credentials (Tesla seldom mentions this product and has announced no plans for actually building it).  The announcement in April, 2016 of early reservations for a $35,000 Model 3 which turned out to be over 2 years ahead of it ever being available in volume occurred just ahead of a funding round.  I am sure experienced Tesla observers could list many more examples, but the point is that there is very good reason to believe that the Model Y reveal (and maybe a pickup reveal in the same way the coupe was thrown in on the semi reveal) is a cynical, desperate attempt by Tesla to raise some cash from consumer deposits.  My guess is that it will not work so well -- the recent $35,000 Model 3 announcement garnered few deposits and Tesla had disappointing deposit activity when they opened up Europe.  Surely folks have observed that putting down a deposit does not get one a car any faster, and just makes one an unsecured creditor of the company (and may even, as was the case recently, sign one up to pay a higher price than folks who come in only a few weeks later).

As an aside, you folks know that as a libertarian I do not advocate for a lot of extra regulation so take the following as a prediction rather than necessarily a recommendation.  Tesla has pioneered the deposit-taking, go-fund-me model for new car introductions, and I think that when this all blows up and the dust clears, one of the results will be tighter regulation of how companies handle deposits on their books.  I would expect the SEC to require better transparency on deposit numbers and that customer deposits be escrowed in some way and not co-mingled with general operating funds.  And while we are at it, I will recommend one regulatory / accounting change -- the ability of car companies to leave ZEV credits off their balance sheet entirely and use them like magic pixie dust out of the blue to spice up random quarters needs to end.  These are real assets and need to be disclosed on the books like real assets.

Disclosure:  I am short Tesla via long-dated puts.  Shorting Tesla seems to make a lot of sense but it can be dangerous and harrowing.  Yesterday we were looking at news of Elon Musk acting like a Mafia thug with whistleblowers and still dealing with the fallout of Tesla's rapidly changing and contradictory strategic announcements, and the stock was up 2%.  Be careful.

I Don't Know How Technical Support People At Places Like Amazon Maintain Their Sanity

For years our company was forced by our partners to use their reservation systems to take bookings for campgrounds we operate.  But several years ago we had the opportunity to run a number of campgrounds where we have the ability to choose the reservation system.  After a lot of false starts, we developed it ourselves, a decision we have been happy about.

I am not surprised people lose their passwords or forget them or enter them incorrectly.  But what amazes me and sometimes drives me to madness is the absolute CERTAINTY some have that they are entering their password correctly and therefore it MUST be our system that is somehow not functioning correctly.

Forget Net Neutrality, If the @FCC Wants to Improve My Life, Focus on Fixing the Telephone Caller ID System

I have written before that the caller ID system in the US is totally broken.  It is bad enough at home, but there are legal protections against spamming home numbers that mitigate some of the issues.  I will tell those of you who complain about spam on your cell phone or home phone that you have not seen anything until you have a business line.  The calls are endless, and caller ID is totally useless because every telemarketer seems to spoof the caller ID.  I have almost stopped answering by business number (more on that in a minute).

I did answer one call the other day that said it was from something like Loretta Smith.  I picked up and answered (thinking it might be a customer) and the person, obviously a male, said "I am calling from Such and Such capital company".  I get these all the time - banks won't make cash flow loans to any small business, even one with over $10 million in sales, but everybody and his dog wants to do equipment leasing.  So I began calling the person Loretta.  After a few times of this he got mad and asked why I kept calling him Loretta.  I said the caller ID system said he was Loretta, and that if that is incorrect it likely means his company is spoofing the system and that I was super unlikely to make a major financial transaction with a company whose very first contact with me was based on fraud.

As I said, I have mostly stopped taking calls.  I have a voice mail message that tells folks my email and that they are welcome to email me and I will get back to them promptly, which I do.  I still encourage front line employees and customers to contact me personally if they are having an issue my local managers can't fix.  I used to get these calls by telephone but I just can't answer my phone any more, it wastes too much time dealing with spam.

I have written about my personal frustrations before but what really got me to write this post was a contact with a sales rep for a product I was buying.  This person's entire income comes from phone calls from customers wanting to buy this company's product (for which they are the exclusive local distributor).  This is a one-time product sale and so typically she does not know her customers, they are all new.  When I first called, I got her voice mail.  In the middle of leaving a message, the person picked up and said she was sorry but she hesitated to answer her phone due to all the spam.  Can you imagine?  A salesperson who depends on people calling to buy product that doesn't want to pick up the phone.  That is a broken system.

A Quick Note: Trafficking and Prostitution are Not the Same Thing

Prostitution is a person selling sexual services of their own free will.  Trafficking is a form of kidnapping and slavery, when someone is forced to provide sexual services by someone with power over them.

All or even most prostitution is not trafficking, but many in the media and political sphere use these two a synonyms.  I have seen it all week surround the Robert Kraft bust for seeking a private happy ending even before his team played in the Superbowl.   I see this as a victory of traditionally anti-prostitution folks on the Right who have found a way to take advantage of a division on the Left, and specifically a division within feminism, to rebrand prostitution and bring some folks on the Left over to their side.

I am not an expert on feminist politics, but what I do know is the prostitution has created a divide among feminists.  You remember the old abortion chant that feminists wanted the government to keep its laws off their body?  That what a woman did with her body was an eminently private affair and should not be subject to government regulations?  Well, feminists who followed up on this thought in a consistent manner generally supported legalization of prostitution.  Bans on prostitution were seen by these folks as just another example of the male-dominated system limiting women's choices and ability to make money the way they choose.

On the other side more modern feminists see everything through the prism of male power over women.  This is the "all sex is rape" group and for them prostitution has nothing to do with women's free will and everything to do with yet another channel through which men objectify and dehumanize women.  From here it's only a small step to thinking that all prostitution is slavery.  And thus by attempting to rebrand prostitution as trafficking, the Right found new allies on the Left in their campaign against sex work.

Those who read me a lot know I come down on the side of women being able to exercise choice, and I think the only real dehumanizing going on is the denial by modern feminists of any agency among most women.

But real abusive trafficking certainly exists.  How much of prostitution fits this category is impossible to really know as a layman because the media and activists do so much to blur the line in their reporting.  But I will say this:  To the extent trafficking exists, it is not enabled by society somehow being soft on prostitution, in fact it is enabled by the opposite.  By making prostitution illegal, we give unscrupulous people leverage to abuse those in sex work.  Women being abused by men at, say, Wal-Mart have many legal outlets to air their grievances and seek change or compensation -- no one talks about trafficking in Wal-Mart greeters.  But abused sex workers cannot go to the legal system for redress of abuse because they themselves are treated as criminals in the system.  Contributing to this is our restrictionism on immigration.  This is why many real trafficking cases revolve around the abuse of immigrant women, because abusers know these victims have not one but two impediments to seeking legal help.

For a short time 5-10 years ago I thought we might be near a breakthrough in softening the penalties on women voluntarily seeking to make a living through sex work.  Now, my optimism has dimmed.  The success the Right has had in enlisting parts of the Left in rebranding all prostitution as slavery has polluted discourse on this issue and means a lot of women will still be left outside the law.

The Crappy State of Service Businesses

Perhaps it was always this way, but I am just at the end of my rope dealing with service businesses.  Whether it be my roofing contractor or my bank or my background check provider -- really almost everyone -- absolutely no one seems to be able to follow through on service promises.  Increasingly I have to keep a long tickler list of things that my service providers should just reliably do as promised, but that I have to repeatedly follow up on with reminders and such to make happen.  It is exhausting.

LIfe in the Campground Management Business

One of the mistakes I made early on in the business of operating campgrounds was in calculating return on investment based on expected annual averages.  The normal annual figures were fine, but failed to take into account that somewhere in our portfolio every year we were going to have major problems caused my mother nature.  Towards the end of this video you can see -- actually you can't see it but trust me -- one of the campgrounds we operate under 8 feet of water.

 

RIP Snuggles

She was the first dog either my wife and I ever owned, and probably the last (given all of our travel).  But she was awesome.  In the picture above, she is in her favorite spot, able to interact with the family at near-eye-level.

She lived nearly 13 years and survived two previous bouts with death -- an attack by a coyote and a disease that caused her to waste away to barely 7 pounds (in her youth we used to call her the world's largest Maltese as she tipped the scales in the high teens).  She was named by my (then) 8-year-old daughter and my son and I spent her lifetime trying to find names to call her that did not involve yelling SNUGGLES! all over the neighborhood.  Usually, we defaulted to "Snuggs".  As you can see, she was not really the showdog Ferrari-style Maltese -- more the all weather 4x4 model.

I feel guilty as she probably bonded with me the least, but she spent her final hours in my arms (as the rest of the family was out of town).  We will miss her.

Wow, I Thought Our State Government Was Messed Up

Via Overlawyered, check out this story unfolding in West Virginia:

Last year’s attempt by the West Virginia legislature to impeach and remove from office several members of the state’s supreme court effectively ended when the state supreme court ruled the impeachment proceedings were unconstitutional. (State ex. rel. Workman v. Carmichael) Now members of the legislature have moved to withhold judicial retirement benefits unless that decision is overturned.

Hat tip to WV Clean Elections for the news article

Under SB 398 as amended yesterday by the House Judiciary committee, the payments for retirement benefits would cease unless Workman v. Carmichael is overturned.

 

The Reversal of Left and Right Continues

As the Left works hard to become the new Victorians, the reversal of Left and Right continues.  The most recent story:  Harvard students call on the University to remove a Harvard dean because, as an attorney, he has the temerity to represent an unappealing client.  When I grew up it was Conservatives that would try to shame an attorney for representing an alleged murderer or rapist, and the Left that used to scream that everyone has a right to representation in the legal process.  If I see the ACLU chime in against the dean, I will know the reversal is complete.

Whoever Did this Cereal Story Is A Lot Younger Than I

14 Cereals that Defined Our Childhood.

Hmm.  Quisp and Quake anyone?  I think as a kid I even voted in the national contest of which cereal they were going to kill.  A big bowl of Quisp and a glass of Tang.  Now that was breakfast.

Combatting Stereotypes with Increased Information

This story from Alex Tabarok on a study by Cui, Li and Zhang come to remarkably similar results to a previous study on ban the box laws in hiring

We conduct four randomized field experiments among 1,801 hosts on Airbnb by creating fictitious guest accounts and sending accommodation requests to them. We find that requests from guests with African American-sounding names are 19.2 percentage points less likely to be accepted than those with white-sounding names. However, a positive review posted on a guest’s page significantly reduces discrimination: When guest accounts receive a positive review, the acceptance rates of guest accounts with white-sounding and African American-sounding names are statistically indistinguishable.

This is modest good news.  It means that the original discrimination observed against people using Airbnb with black names had more to do with perceptions or stereotypes of unknown black people (e.g. "maybe they are more likely to be a criminal") than an out-and-out attitude of not wanting to have blacks set foot in their house.  The former is not great but a hell of a lot easier to combat than the latter.  I would argue the breakthrough in attitudes on gay marriage had a lot to do with so many people coming out of the closet over the last decade or two that almost everyone ended up having friends or family who were gay, and who they knew first hand to be good people.  This overcame past attitudes about homosexuality which for many were based wholly on stereotypes within their local circle.

As I linked above, this result in the Airbnb study was similar to a study on how ban the box had the perverse effect of reducing hiring of African-Americans because it reduced information:

Jurisdictions across the United States have adopted “ban the box” (BTB) policies preventing employers from asking about job applicants’ criminal records until late in the hiring process. Their goal is to improve employment outcomes for those with criminal records, with a secondary goal of reducing racial disparities in employment. However, removing criminal history information could increase statistical discrimination against demographic groups that include more ex-offenders. We use variation in the timing of BTB policies to test BTB’s effects on employment. We find that BTB policies decrease the probability of employment by 3.4 percentage points (5.1%) for young, low-skilled black men.

In that case as well, when no information is available, people fall back on stereotypes.  Employers recognized that stereotypes about criminal behavior were weak information and readily overcame them when better information (e.g. background checks) were available.

Social Justice Virtue Signaling Has Become a Form of Tourette's -- It's A Tic People Can't Seem To Stop Themselves From Doing

I was reading the USA Today story about a local guy who reported a local restaurant to the newspaper because it had a picture of guys in blackface they wouldn't take down -- what turns out to be a picture of Welsh coal miners covered in coal dust.  Personally, I am sorry the guy has faced so much vulgar hostility and apparent outright racism in the letters he has received.  But I still can't get past a judgement that his concern was historically ignorant, clueless virtue signalling.  His concern failed even on the level of his own stated principles in that it tried to deny a voice to folks who were a lot more downtrodden and lacking in privilege (including a near certainty of early death from a variety of respiratory diseases) than are modern African-Americans.

The silver lining from all this is that I had forgotten that Phoenix had a Cornish pasty restaurant and I have since eaten there twice (well, one was delivered) and it is awesome.

All this is preface to an event that happened a week or two ago.  My wife and I were at a small, ticketed event watching a preview of an upcoming Ballet Arizona performance of the Firebird.  These take place in a small rehearsal theater and give ballet supporters a chance to see a preview and then hear from our artistic director (and in this case also the costume designer).

I have to give a bit of background on the ballet.  We were previewing the opening scene, in which a prince and a group of his friends are hunting in the forest and discover a secret magical place where they encounter the firebird -- a sort of fantasy non-human creature played by a ballerina.  They try to capture her, she nearly dies, she pleads for her life, and the prince revives her (which then leads to a sort of reward that leads to the rest of the story).

Anyway, in this performance the ballet tried to do something different.  The artistic director Ib Anderson reimagined the scene as a sci fi scene from his childhood -- think of the prince being Captain Kirk on an away mission on a new planet and discovering an alien. All the new costumes are sci fi / alien themed.

OK, so we see this opening scene.  I am only a middling ballet fan but the scene is beautifully done.  Afterwards we had Q&A.  Even I was thinking about asking about the idea, but geek that I am my mind had wandered from the ballet of an away team visiting a planet to imagining the original cast of Star Trek dancing ballet on a new planet to trying to figure out what Star Trek episode had the main characters dancing and playing air instruments ("I Mudd" by the way).

A hand goes up in the first row.  Rather than a question, the guy goes into a monologue about how he really didn't like the fact that all the men attacked a defenseless woman and that the only way she got her powers back was because the man chose to give them to her.  Now, I said that in about 20 seconds but this went one for a minute or two.  It was excruciating.  An enormous WTF moment.

First, it's a freaking alien that is being played by a woman.  Second, to the extent it is a reflection of stereotyped gender roles by the original author, does this person monologuing to us really think the rest of the audience is unaware that writers 100 years ago had different visions of women's roles in society than we have today?  Is his goal to whitewash the past by pretending authors never wrote this kind of thing, or is his goal merely to make sure that we all know that he knows?  Even weirder, to be at this event the guy was presumably a ballet aficionado at some level -- has he never seen, say, any 19th century story ballet?  Or better yet 19th century opera, where the main role of women seems to be to die of some sort of wasting disease in the third act?  And finally, is he really concerned that the community of ballet choreographers and dancers is somehow a secret den of anti-wokeness that needs to be exposed?

I compare this need to publicly virtue signal like this to Tourette's because I don't think the guy could help himself.  Had you carefully explained all of the above to him in advance, he still likely would have had to make his speech (just like the guy with the miner photo above still insists he did the right thing even now that it has been explained that its a freaking photo of downtrodden, soon to be dead of respiratory diseases, miners).  By the way, it was sort of funny to see the reaction of the ballet folks on stage to this -- they tend to be way out there on social justice causes themselves and were clearly unused to being outflanked on these issues.

I got to thinking, what is the solution if this were really a problem?  I suppose we could gender swap the whole thing, with a male in the lead of Swan Lake, say.  But that does not really work, because in general in all these unwoke story ballets the females get all the best roles.  Most of the men are just props.  So gender swapping them would just take all the best roles away from women and hand them to men.  Eek, what is a good SJW to do?

Concert Recommendation -- Lady Gaga Jazz and Piano

I am not a Lady Gaga fan.  I could probably name a few of her songs if you put a gun to my head -- Poker face, uh that one in A Star is Born, uh, something something Romance.  And I was actually a tad resentful of even going -- we were in Las Vegas during the freaking Superbowl and we are skipping the game and going to Lady Gaga?

She had two shows in Vegas at the Park Theater (by the way best large theater I have ever been in for a concert -- WAY better than some hockey rink).  One show was her regular show with her pop music and one was a jazz show with American songbook classics.  We saw the latter.

And it was amazing.  In a world of autotune and pop singers who can't actually sing *cough* Katie Perry *cough*, Lada Gaga can sing her ass off.  It was tremendously impressive.  I don't know if she is doing this show again or in other locations but it is highly recommended.

PS-  The night before we went to a little Italian restaurant that had Pia Zadora singing in the lounge.  Spent the evening sitting at the bar chatting with the Liza Minnelli impersonator who spelled Pia from time to time.  A very old-school Vegas evening.  And did you know Pia Zadora has a freaking Warhol of her? And it's good.  Way more flattering than most paintings Warhol did of women.  Which is likely the product of her billionaire husband turning the screws on the artist.

PPS- Apparently we didn't miss much in the Superbowl.

Megan McArdle on Why We Will Never Have High-Speed Rail in the US

Megan McArdle has a great WaPo article and tweet storm on high-speed rail in the US.  In it she focuses on issues of distance and infrastructure barriers we have.

One thing she left out is that the US rail system is optimized for freight, vs. European and Japanese systems that are optimized for passengers (it is hard to do both well with the same network).  The US situation is actually better, much better, for energy conservation.  I wrote in detail about this before:

First, consider the last time you were on a passenger train.  Add up the weight of all the folks in your car.  Do you think they weighed more or less than the car itself?  Unless you were packed into a subway train with Japanese sumo wrestlers, the answer is that the weight of the car dwarfs that of the passengers it is carrying.    The average Amtrak passenger car apparently weighs about 65 tons (my guess is a high speed rail car weighs more).  The capacity of a coach is 70-80 passengers, which at an average adult weight of 140 pounds yields a maximum passenger weight per car of 5.6 tons.  This means that just 8% of the fuel in a passenger train is being used to move people -- the rest goes into moving the train itself.

Now consider a freight train.  The typical car weight 25-30 tons empty and can carry between 70 and 120 tons of cargo.  This means that 70-80% of the fuel in a freight train is being used to move the cargo.

This is another case of short-sighted analysis that looks only at the seen rather than the unseen.  Coastal elites take trips to Europe and see the beautiful high-speed trains and in turn never spend a moment thinking about freight trains.  So they fixate on beautiful sexy passenger trains rather than thinking about the system holistically.  I titled a Forbes article I wrote on the effect as "Shifting Capital from the Productive to the Sexy."

 

PS-  I am a train buff and have a whole room of my house filled with a model railroad, so I don't knee-jerk hate on rail.  I have ridden European high-speed rail many times so I am familiar with the product.  The London-Paris segment is great, and I have ridden the French TGV from Paris to Marseilles and the Italian line from Milan to Florence.  What's not to love as a tourist -- we don't pay for them and they provide good service between the city centers of tourist destinations.   But if you look at those trains they really have a ton of expensive infrastructure carrying not very many people over relatively (for the US) short distances.

I write this because after I criticized infrastructure triumphalism in Joel Epstein's article at Huffpo, he wrote me a one line retort: "You should get out of the country more often."  LOL, if you had to enshrine a hall of fame of sneering coastal elite dismissive comments of critics, this would have to be on the list.  I tried to follow up with him and ask him if he would have the US adopt China's infrastructure construction practices if the cost was adopting China's environmental and accountability standards, but I did not get a response.

Thanks to Helen Smith @instapundit For Helping To Promote My Company's Labor Model

She highlighted a new Amazon book called Live Camp Work: How to make money while living in an RV & travel full-time, plus 1000+ employers who hire RVers.  I have not read it yet but I just bought it and may post a review.

Our company hires about 350 RVers every year.

California Governor Finally Sees Reason on High-Speed Rail. And Then He Doesn't

Via USA Today:

California Gov. Gavin Newsom has announced that he’s abandoning a plan to build a high-speed rail line between Los Angeles and San Francisco.

The project's cost has ballooned to $77 billion.

“Let’s be real,” Newsom said in his first State of the State address on Tuesday. “The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency.”

Hurray!  This is long overdue.  I was writing about how dumb an idea this was back in 2008.  I remember it because I was on Fox and Friends in the worst time slot ever to talk about it.  Not only was the interview at like 4AM Arizona time, but the segment immediately before I discussed economics and public policy *yawn* they had 8 cute maltese puppies frolicking on stage.

Everyone, including I would bet California officials but probably excepting elements of the fawning media, knew the cost estimates were a joke.  In 2010 when CA said $30-$40 billion I said it would take at least $75 billion and when CA belatedly adopted that number I doubled it to $150 billion and I think that is still low for what it would have cost.  This was all at a time when you could fly Burbank to Oakland on Southwest for $90.

But because it seems to be a rule that no CA politician can remain sane for more than 5 minutes straight, here are the next lines of the story:

Newsom, though, said he wants to finish construction already underway on a segment of the high-speed train through the Central Valley. The project would connect a 119-mile stretch from Merced to Bakersfield.

“I know that some critics are going to say, ‘Well, that’s a train to nowhere.’ But I think that’s wrong and I think that’s offensive,” Newsom said. “It’s about economic transformation. It’s about unlocking the enormous potential of the Valley.”

This is absolutely absurd.  If you started with a clean sheet and studied what the Central Valley really needed for "economic transformation," I am willing to bet a high-speed rail line from Merced to Bakersfield would not be in the top 100 items, maybe not the top 1000.  Probably first on the list for the Central Valley economy would be to stop applying minimum wage rates based on San Francisco to poorer rural areas of California.  If you wanted to limit yourself to infrastructure projects, the Central Valley would probably beg for water infrastructure projects, not a silly overpriced train.

I'm Sure This Is Totally Legit

I missed the beginning because this is where voice mail picked up and started transcribing but it's definitely a classic:

...found some issue with your current Social Security number, so we have the started to suspend it and issue a new one to you now in order to get more details on it. I want you to give me a call back on 509-287-7296. I repeat. It's 509-287-7296 now if I do not get any call back from you then unfortunately, we need to proceed further. Thank you and have a blessed day.

I saw that the FCC is finallying rousing itself to maybe do something to fix the outright fraud in the caller ID system.  I hope so, this is long overdue and is exactly the sort of rule-setting to protect basica infrastructure that a limited government should be doing.

PS-  I use Hiya on my android phone but I am open to other solutions.  My main problem is my work phone which rings all day with spam calls, not sure if there is a solution for that.