Mish's Global Economic Trend Analysis

"UberCab" vs. Al Gore's $90 Trillion Plan to Rid World of Cars: Uber CEO Asks Tesla for 500,000 Autonomous Cars in 2020; Peak Cars?
Always Another "Last Chance", Until There Isn't; Myth of the Open Door; Last Chance for Whom?
940 Chinese Firms Halt Trading; China Allows Houses as Margin, Bans Use of Term "Equity Disaster"; Two Rules, Two Questions

"UberCab" vs. Al Gore's $90 Trillion Plan to Rid World of Cars: Uber CEO Asks Tesla for 500,000 Autonomous Cars in 2020; Peak Cars?

Posted: 07 Jul 2015 05:50 PM PDT

A few days ago I received an email from yet another naysayer telling me that I was wrong about self-driving cars and we would not see them in his lifetime.

I don't recall precisely how I answered, but it was along the lines of "Are you planning on dying in five years?"

"UberCab" Coming

Today I received an email from Richard, a more enlightened reader who writes ...

Hello Mish,

Your predictions for self-driving cars and trucks seems to be on track. Looks like interesting times ahead as interest builds.

Richard

Uber CEO Wants 500,000 Autonomous Cars In 2020

Richard emailed a link to the Green Car Reports article Uber CEO To Tesla: Sell Me Half A Million Autonomous Electric Cars In 2020.

Tesla Motors is one of several automakers planning to put a self-driving car on sale sometime in the next few years, and it already seems to have at least one big fan.

This person isn't a celebrity owner or safety advocate, but rather the CEO of preeminent ride-sharing company Uber.

If Tesla can build a fully-autonomous car by 2020, Uber CEO Travis Kalanick says his company would it. In fact, he'd buy every one Tesla builds.

Yes, all 500,000 electric cars Tesla expects to produce in that year, according to Forbes (via Charged EVs).

That boast comes not directly from Kalanick himself, but from Steve Jurvetson--an early Tesla investor and board member.

Jurvetson relayed what he claimed were Kalanick's remarks at the recent Top 10 Tech Trends dinner, hosted by the Churchill Club.

Tesla CEO Elon Musk previously said he expects the company to build 500,000 cars per year by 2020.

That prediction was reconfirmed by Tesla chief technical officer JB Straubel at a conference in Washington, D.C. last month.

Fact or Fantasy?

Green Car Reports linked to a Forbes article in which Five Top VCs Predict The Future.

The CEOs were Jenny Lee of GGV Capital, Steve Jurvetson of Draper Fisher Jurvetson, Rebecca Lynn of Canvas Venture Fund, Bill Gurley of Benchmark Partners and Shervin Pishevar of Sherpa Ventures.

Two of the 10 CEO predictions were about cars.

5. End of the Auto Nation - Bill Gurley

The U.S. designed cities around individual car ownership, and the result has been inefficiency, deaths and pollution. U.S. cars are on average idle 96% of the time, which is about $15 trillion in capital assets not used, said Gurley, an Uber investor.

Gurley: "We may have hit what's called peak car. Kids aren't showing up on their 16th birthday to get a driver's license. The smartphone is more of a social status than a car is."

9. Rise of Robocars (the audience-voted winner of the night) - Steve Jurvetson

Jurvetson: "For those of us who have a chance to be in one, you'll never go back. I believe they are already safer than my parents." Initially they will run at speeds of 25 mph or less in urban settings, he said.

Jurvetson said Uber CEO Travis Kalanick told him that if Tesla cars are autonomous by 2020, Kalanick wants to buy all 500,000 that are expected to be produced.

Fact or Fantasy?

Whether or not Tesla builds a half-million self-driving cars for Uber is not the point. Nor is a precise date of 2020 important.

What's important is the trend. And that trend is both fast and unmistakable. Self-driving cars are coming, far sooner than most predictions suggest. And they will be far safer, with more features.

Drivers Not Wanted

The need for taxi driver, limo drivers, bus drivers, train drivers, and long-haul truck drivers will nearly vanish within 10 years, and five or six would not surprise me at all.

The pace of technological advancement is breathtaking.

Uber Banned

As an important side note, Uber is banned in so many places I lost track. At one point I was accumulating all the places the company was banned.

BusinessInsider reports Here's Everywhere Uber is Banned Around the World, then goes on to ask "Will Uber's $40 billion valuation be enough to cover its legal fees?"

That map and valuation is as of April 8, 2015. Since then it has been banned in more places.

Here is a link to a Google search for "Uber Banned".

As is often the case, France is on the forefront of idiotic reactions to technology to preserve over-paying and the French way of life.

Uber in France

Two days ago ComputerWorld reported Uber throws in the towel in battle with French taxi drivers.

Uber Technologies is suspending its UberPop service in France, after a bitter fight with taxi drivers who say the service breaks the law.

The company plans to remove access to UberPop from its mobile app in France from 8 p.m. local time Friday, it said in a blog post.

Uber has been disrupting transportation markets around the world -- nowhere more so than in Paris, where taxi drivers recently blocked highways and airport entrances with burning tires in protest at the company's behavior. The protests also reportedly included attacks on Uber drivers, their vehicles and passengers. The taxi drivers are angry because, they say, UberPop breaches a new law on hiring vehicles with a driver that entered effect on Jan. 1.

The Market, Not Politicians, Rule

Inquiring minds may be wondering "How can Uber exist with political forces aligned against it?"

The answer is simple: Uber provides a service that millions of people want!

I receive emails all the time about Uber being banned, about drivers being unresponsive, about drivers not knowing where they are going, and of course about the idiotic reactions in France.

But as long as people want Uber, it will not go away. And by 2020 (more or less), there will not be any discourteous Uber drivers, bad drivers, or unresponsive drivers because there will not be any Uber drivers at all.

Al Gore to the rescue, NOT.

Al Gore's $90 Trillion Plan to Rid Cities of Cars

As preposterous as it may seem, Al Gore has a Plan to Spend $90 Trillion to Get Rid of Cars in Cities.

"Former Vice President Al Gore and Mexican President Felipe Calderon proposed a $90 trillion plan to redesign every city on earth so that motor vehicles would become obsolete due to more dense populations."

Never underestimate the stupidity of politicians and their ridiculously expensive solutions to non-problems that the free market will take care of on its own.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Always Another "Last Chance", Until There Isn't; Myth of the Open Door; Last Chance for Whom?

Posted: 07 Jul 2015 02:39 PM PDT

For at least a week I have seen numerous headlines and articles purportedly offering Greece a "last chance".

We saw the same headlines before both of the prior Greek bailouts.

Thus, and in spite of the fact we are weeks past the alleged midnight expiration of a deal, it's no surprise to see this headline today: Greece Faces Last Chance to Stay in Euro as Cash Runs Out.

Greek Prime Minister Alexis Tsipras launched a desperate bid to win fresh aid from skeptical creditors at an emergency euro zone summit on Tuesday, before his country's banks run out of money.

But German Chancellor Angela Merkel said on arrival there was still no basis for reopening negotiations with Athens.

"It is not a matter of weeks but of a few days" to save Greece from collapse, Merkel told reporters.

[Hmmm. Apparently there are a few day's worth of last chances coming]

Merkel and French President Francois Hollande said after conferring on Monday in Paris that the door was still open to a deal to save Greece from plunging into economic turmoil and possibly having to ditch the euro.

Merkel, under pressure in Germany to cut Greece loose, made clear it was up to Tsipras to present convincing proposals after Athens spurned tax rises, spending cuts and pension and labor reforms that were on the table before its 240 billion euro ($262.7 billion) bailout expired last week.

Jeroen Dijsselbloem, chairman of the Eurogroup of currency zone finance ministers, said the ministers would hold a conference call on Wednesday to review a Greek request for a medium-term assistance program from the European Stability Mechanism bailout fund, due to be submitted within hours.

[If ESM or ELA is granted, there could be month's worth of last chances]

A Greek government official retorted: "Some are maintaining 'we don't have proposals'... Is it really that 'we don't have proposals' or is it that they don't like our proposals?"

New Offer Coming

Greece was given a "last chance" to produce an offer this morning to eurozone officials.

To the surprise of eurozone leaders, Greece showed up without a proposal. Nonetheless, Greece poised to offer new proposal for third bailout.

Greek negotiators stunned some eurozone finance ministers by arriving at their meeting without a revised economic reform proposal.

Asked why Greece had not brought fresh proposals to the summit on Tuesday,[Euclid Tsakalotos, the new Greek finance minister] said: "It is more complicated than that. We have a set of reforms and we are discussing on that basis."

"There is still no basis for negotiations," said Angela Merkel, the German chancellor. "I say it's not a matter of weeks but of a few days."

A Greek government spokesman said the plan verbally outlined by Mr Tsakalotos was the same as that sent to creditors on June 30 "with certain improvements". The June 30 plan conceded to many of the demands made by bailout monitors but was still considered insufficient.

Eurozone officials have said that in order to agree a new bailout programme, further reforms and savings would be needed on top of those demanded under its now expired bailout, given the recent deterioration in the economy. That led several to worry that Athens still had not come to grips with what it needed to do to win over sceptical colleagues.

Myth of the Open Door

Check out that last paragraph. The door is open, but for what?

Also note that Merkel said "There is still no basis for negotiations". What kind of door is that?

Clearly, the only open door is for complete capitulation by Greece, and then some. Eurozone ministers now want additional reforms from Greece.

Until Greece defaults on the ECB, this will be the state of affairs.

Eurozone Exposure

Source of the table is Barclays, via email. I have no link.

Upon default, Germany will learn that its portion of the bill is about €92 billion, France €70 billion, Spain €42 billion, and Italy €62 billion.

Those numbers are from end of April and are undoubtedly higher today thanks to Target2 and cash under the mattress liabilities of banks.

Where is Spain going to come up with €42 billion or Italy €62 billion?

Questions Abound

Will the ECB simply print the money and hand it out in violation of rules?
How about setting the maturity 101 years into the future, effectively whitewashing the total?

Last Chance for Whom?

Looking at the above numbers, I have to ask, precisely: Who is the "last chance" really for?

The answer to that question explains why there has been "last chance" after "last chance" after "last chance".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

940 Chinese Firms Halt Trading; China Allows Houses as Margin, Bans Use of Term "Equity Disaster"; Two Rules, Two Questions

Posted: 07 Jul 2015 11:00 AM PDT

Two Rules

Every bubble eventually bursts
The bigger the bubble the bigger the bust

Central banks globally have blown the biggest bubble ever in the wake of the 2008 crash. We have only just begun to see the carnage that is coming.

That carnage started in China and it's going to spread.

Two Questions

How fast?
Where Next?

The two pertinent questions now are "How fast?" and "Where next?"

I don't have the answer to those questions. Nor does anyone else. What I do know is attempts to stop bubbles from bursting don't work. Indeed, they only make matters worse.

China's Market and Policy Timeline

Bloomberg has an interesting graph of China's Market and Policy Timeline.

click on chart for sharper image

In an absurd attempt to maintain GDP Growth estimates that no one in their right mind believes possible, here are some key actions that China took.

Key China Actions

December 28: Rule tweak gives banks more room to lend
January 22: Bank of China taps reverse repos to target demand
February 4: Bank of China cuts reserve ration
March 8: China announces trillion Yuan local government debt swap
March 31: Survey shows average investor in rally did not finish high school
April 15: GDP shows "only" 6.5% growth, a number below target
April 19: China cuts RRR (Reserve Requirement Ratio) by 100 basis points
June 10: Two trillion yuan (about $322 billion) debt swap frees funds for growth
June 12: Shares peak
July 5: China suspends IPOs, brokers launch "stabilization fund"

My favorite bullet point is number 5, March 31: Survey shows average investor in rally did not finish high school.

940 Chinese Firms Halt Trading

The Financial Times reports Stocks Fall Despite Stabilization Efforts

Hundreds of Chinese companies have halted trading in their shares as Beijing struggles to insulate the economy from the country's steepest equity decline in more than two decades.

Another 173 firms listed in Shanghai and Shenzhen announced trading suspensions after the market closed on Tuesday, bringing the total to around 940, or more than a third of all listed firms on the two exchanges.

Beijing has taken steps to keep stocks on China's two main indices afloat, including direct purchases of large-cap companies, a halt to initial public offerings and a cut to trading fees. But so far its efforts have failed to staunch concerns.

Haitong Securities said late on Monday it would allocate Rmb15bn ($2.4bn) to tracker funds to help "maintain stable development" of the equity market. That followed a vow by 21 securities brokerages at the weekend to use their own capital to buy shares.

China Bans Use of Term "Equity Disaster"

On the absurd theory that if you don't talk about it, the problem does not exist, China's sensors stepped into the act.

"One local reporter, who did not want to be named, said the government had banned local media from using the terms 'equity disaster' and 'rescue the market' in their reports on the stock market."

In spite of this plunge, the Shenzhen index is still up about 36 per cent for the year.

China Allows Houses as Margin

Margin speculation and loose money to spur growth is what's behind the bubble, but that does not stop idiot (no milder word will suffice) regulators from trying to stimulate margin.

Fortune has the details in China's Big, Misguided Stock Market Gamble.

The rout in China's frothy stock markets since mid-June has been painful, to say the least. Between its peak on June 12 and July 2, the Shanghai Composite Index, which includes China's largest companies, dropped 28%, wiping out $2.4 trillion in paper wealth.

Over the weekend, the People's Bank of China announced a plan to inject funds into a state-owned entity that lends to brokerage firms. The country's 21 brokerage firms also pledged 120 billion yuan to invest in stocks when the Shanghai Composite Index is below 4,500 (it closed at 3687 on July 2). Besides financing the bubble with new money, the Chinese government has suspended IPOs, cut trading fees, and relaxed requirements on margin loans (for example, Chinese retail investors can now use their apartments as collateral).

Unsurprisingly, the performance of the stock market has been made a barometer of the popularity of the current regime. The head of China Security Regulatory Commission not too long ago called the soaring market "a reform bull market," suggesting that investors were giving a vote of confidence in the leadership's promised reform programs.

We can see this mindset at work in China's management of two recent bubbles: the real estate market and local government debt. In addressing the real estate market bubble, Beijing has opted to keep insolvent developers alive by forcing their lenders to roll over the loans. Consequently, the glut of unsold inventory hangs over the real estate sector. Because there is such an excess in the supply of housing, it is unlikely that those zombie real estate developers will return to life and pay their creditors in full.

Beijing has used a similar recipe for shoring up its debt-laden local governments. After the bond market rejected Beijing's plan to float the debt issued by local governments earlier this year, Chinese leaders simply ordered state-owned banks to buy such debt, adding assets of dubious quality to their balance sheet.

Even after its recent plunge, Chinese stock prices are overvalued. The price-earnings (P/E) ratio of the Shanghai Composite Index is 23, compared with 12 for the Hong Kong's Hang Shen Index, on which many of the same Chinese firms are listed. The Shenzhen Composite Index, which has lost a third of its value, has an average P/E ratio of 50. (However, a hefty portion of the reported earnings of Chinese firms is "investment income," paper gains from their overvalued stock portfolios.) Efforts to support the market at high valuations are expensive and unlikely sustainable.

Beijing is trying to save the stock market bubble while three other bubbles have yet to deflate: real estate, local government debt, and manufacturing overcapacity. It's possible that these bubbles will feed into each other, amplifying distortions and raising the final bill to clean up the mess.

Effort to Prevent Losses Must Fail

Resistance is futile. Regardless of efforts taken, loss prevention must fail.

The explanation is simple: The losses have already occurred, they simply have not been fully realized.

The same applies to Chinese GDP, purportedly growing at 7-10% for decades. High growth in emerging markets for a few years is reasonable, but not decades on end.

Building entire cities where no one lives, malls where no one shops, trains that no one uses all add to GDP because of the ridiculous definition that says all government spending adds to GDP.

Factor in malinvestment, future write-downs, pollution cleanup costs, etc., and the Chinese economy is hardly growing at all. Coupled with loose money, those are the conditions in which bubbles form.

Global Equity Day-of-Reckoning Coming

Courtesy of the Fed and central bankers in general, a global equity day-of-reckoning is coming, and very few even see it.

In spite of all the messages you hear that "stocks are cheap", the fact remains stocks are not cheap.

Central banks have still not admitted their role in the Great Financial Crisis, and they have done it again.

It's too late to stop the carnage because the bubbles have already been blown. The open questions are as I stated at the top: "How Fast?" and "Where Next?"

No one has those answers, but huge pain is coming.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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7.7.15

Mish's Global Economic Trend Analysis

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