Barron’s editorial page editor raises red flag about Tesla

As far as I know, Thomas Donlan of Barron’s is no car expert. But he’s covered the financial sector long enough to see some problems in recent dealings involving Tesla.

Nothing to see here. Move along. It was just an accident, just bad timing. The barrier that Wall Street used to call a Chinese wall—barricading firms against conflicts of interest between their analysts and their investment bankers—is still intact. Or so they say at Goldman Sachs, at Morgan Stanley, around the corner, down the block and in the bars.

Tesla, the electrifying electric-car stock, went up some more on May 18 after Goldman Sachs analysts issued an upgrade to a Buy rating and set a price target of $250. “Following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential,” said Goldman analyst Patrick Archambault.

The stock rose 3%, to $211. Later the same day, Tesla announced a secondary offering of stock—$1.7 billion worth. And it said that Goldman would be co-managing the issue, earning fees and spreads.

If anything, Goldman Sachs analysts are pikers. Those at Morgan Stanley, the offering’s co-manager, declared Tesla “arguably the most important car company in the world” back in July 2014, with a price target of $320 a share and a production target of 1% of the global automotive market by 2028. More recently, they put out a report raising their price target to $465—more than twice the price in the market on Friday.

These announcements combined to put more money in the pockets of Tesla and its CEO, Elon Musk, who sold about 2.7 million shares—to say nothing of the underwriters. Enthusiastic investors paid cheerfully. …

… The real hyperenthusiasts, of course, are at Tesla. In its first-quarter letter to shareholders, issued on May 4, it reported receiving more than 325,000 reservations for its new Model 3 in the first week in which it had accepted them. It said: “This implies about $14 billion in future sales, making the Model 3 the biggest consumer-product launch ever.”

Well, no. It’s a product launch only in terms familiar to a small area of Northern California where the word “vaporware” was coined decades ago. It could become a product launch late in 2017, when the company says deliveries of the Model 3 will start. And it implies essentially nothing about future sales. The company did collect $1,000 for each reservation, but the deposits are refundable, if the company can afford it. (Tesla was kind enough to advise depositors that there’s no escrow arrangement to hold their money.)

Slick manipulation of the numbers at many companies these days has started to draw the attention of the Securities and Exchange Commission. Tesla is a prominent example of a company that issues earnings reports to investors that do not use generally accepted accounting principles. As SEC Chairman Mary Jo White said in March, “Your investor-relations folks, your CFO, they love the non-GAAP measures because they tell a better story….We have a lot of concern in that space.”

New Carolina Journal Online features

Kari Travis reports for Carolina Journal Online on the progress of a bill to create an Achievement School District in North Carolina.

John Hood’s Daily Journal counters conspiracy theories about his support for individual freedom.

Furniture market attendance down 1 percent (gasp)

Aside from Bruce Springsteen spurning Greensboro, decline in International Home Furnishings Market attendance symbolized the doomsday scenario for North Carolina as a result of HB2. Remember the lofty statement the market authority put issued warning us all of the “significant economic damage” HB2 would inflict on the market?

Ok, market numbers were down— a whopping 1 percent. And International Market Centers, which runs the majority of showrooms ann has the most accurate numbers since it scans badges, saw a 1 percent increase.

Market officials are now strangely quiet:

Tom Conley, president and chief executive officer of the market authority, was traveling Friday and unavailable for comment. But Doug Bassett, chairman of the market’s board, said officials would have no further comment about the attendance numbers.

“We’ll let our statement speak for itself,” said Bassett, president of Vaughan-Bassett Furniture, when reached by cellphone Friday.

That’s a reversal from late March when, just days after HB 2 was passed, the authority said it had received calls from dozens of customers saying they planned to cancel their attendance at the spring show due to the passage of the bill.

Quite the reversal indeed, but rest assured the N&R’s Doug Clark did his best to put the best possible spin on the bad news (or is it the worst possible spin on the good news?):

We don’t know, of course, whether the 1 percent drop was entirely due to HB 2. Attendance might have been down for other reasons, but with an improving economy one might have expected it to increase. So it’s possible that the real impact of HB 2 was greater than 1 percent.

At any rate, it would be better to see attendance rising than declining.

There’s probably not much chance that HB 2 is good for the furniture market.

So now we’ve gone from end of the world to “probably not a good chance that HB2 is good for the furniture market” in in 6 weeks. Attendees stated what most rational people realize—-all said and done it’s —better for business to attend the market than to stay away in protest. Somehow I think a lot of businesses—including the NBA—- will come to that realization.

N&R featured obituary

Yeah yeah I know President Obama pressed Vietnam on human rights during his recent trip there, but not before he made dadgum sure (channeling my inner Roy Williams here) to point out America’s flaws.

With that in mind, I noted this N&R obituary celebrating the life of a member of Greensboro’s Vietnamese community. There have been more than a few over the years as the generation that witnessed Vietnam’s tragic transformation passes on, and believe you me it’s not the first time I’ve read this sentence (emphasis mine):

Throughout her life, she always lived according to the highest standard of moral values–treating her loved ones and others with compassion, kindness–and class.During the most difficult time of our life in Vietnam, after 1975, she was the glue and the force behind the scene to hold her family together. She faithfully waited and supported her husband, the late Mr. Touprong Hiou, who was imprisoned by communist Vietnam, while she was alone raising her children and helping to raise her grandchildren at home.

Going out on a limb here, I’m guessing the late Mr. Hiou wasn’t imprisoned for insider trading or embezzling. Too much money in politics, the president warns. Growing income equality. Women not making as much money as men. Ooh, scary scary.

Education Quote of the Day

“As the most certain way of handing down to our latest Education the foe of tyranny and the posterity, our free republican government, is to enlighten surest basis of the minds of the people, and to preserve the purity of their morals, too much attention can not be paid to the education of youth, by promoting the establishment of schools in every part of the State. Education is the mortal enemy to arbitrary governments, and the surest basis of liberty and equal rights.”

Governor James Turner, House Journal, 1803.

Unintended consequences from Obama’s overtime rule

Jason Russell of the Washington Examiner reports on aspects of the Obama administration’s new overtime rule that deserve more attention.

Before I worked at the Washington Examiner, I was a research associate with Economics21 at the Manhattan Institute. Every day I produced a draft of the Economics21 Ebrief newsletter, which required compiling about 20 timely and interesting links a day. …

… Anyone who was close to me during that time can tell you the newsletter was not my favorite part of the job. For the most part, the newsletter came on top of my nine-to-five duties, so I worked more than 40 hours a week.

Thankfully, my boss, Diana Furchtgott-Roth, was happy to give me extra vacation time to offset my overtime hours. The rigid work hours were sometimes difficult, but it was worth it because I likely wouldn’t have gotten the extra time off in another job.

The new overtime rule from President Obama’s Department of Labor kills that flexibility for millions of people.

The rule will affect 4.2 million workers who earn between $23,700 and $47,500 per year. It requires employers to pay those workers time and a half for every hour worked above 40 hours a week — even if those workers would rather earn more paid time off instead.

Vice President Biden oversimplified the issue on Tuesday. “Companies will have a choice to make: Either they pay their workers overtime or they cap the work week at 40 hours,” Biden said. “Either way, the worker wins.”

Furchtgott-Roth mentioned a third option to me in an email. Time and a half isn’t an option on a tight nonprofit budget. “I would have had to count your Ebrief hours carefully and send you home at 3. ?Or I could have paid you overtime and adjusted your base pay down. That’s probably what I would have done. The big disadvantage for you is that I could not have given you extra days off to see your family instead of extra hours worked.”

Same pay, same hours worked, less time off. That’s not ideal for anyone, especially not the low-income workers Obama is trying to help.

More stunning shenanigans from the IRS

Ali Meyer of the Washington Free Beacon documents disturbing details about the Internal Revenue Service’s misuse of federal law to take millions of dollars from innocent Americans.

The IRS has seized $43 million from more than 600 individuals by accusing them of violating “structuring” laws even when there has been no evidence of criminal wrongdoing, according to testimony heard at the House Ways and Means Committee today.

In 2012, two armed IRS agents went to the farm of Randy Sowers, a dairy farmer for over three decades, to notify him that the IRS had seized the business’ bank account, which held more than $60,000. The agents told Sowers the IRS had done so because of structuring laws.

When an individual conducts a cash transaction in excess of $10,000, according to federal law, the bank must file a currency transaction report with the Treasury Department. It is unlawful for an individual to break up or “structure” cash deposits into amounts below $10,000 to avoid federal currency reporting.

“At that point, I had never before heard the term ‘structuring,’ and I had no idea that depositing cash in the bank could even potentially be a federal crime,” Sowers said. “Nobody from the bank or the government warned me that under-$10,000 bank deposits could lead to the seizure of our bank account. Indeed, nobody from the government contacted me about our bank deposits until after they seized our bank account.”

“I was shocked that the government would even consider bringing criminal charges when I had done nothing wrong,” Sowers said. “The IRS agents who came to the farm told me that the judge who approved the seizure had given them the authority to take anything up to $243,455—the amount of cash deposited in the account over a period of eight months.”

Robert Johnson, a lawyer working with Sowers who testified at Wednesday’s hearing, filed a petition to the IRS to retrieve the seized money. Ten months have since passed and the government has not responded.

“So-called ‘structuring’ laws criminalize everyday financial transactions that most Americans would never think could be a crime,” explained Johnson, an attorney at the Institute for Justice, a public-interest law firm. “A person who has violated this latter prohibition is said to have impermissibly ‘structured’ cash transactions.”

Man-bites-dog alert: National Review Online praises Obama

Arthur Herman writes at National Review Online about one of the rare instances in which President Obama’s defense policy deserves kudos.

It’s not often that President Obama does something right, least of all in the defense realm. But his presidency is going to be remembered as one that oversaw an important revolution in warfighting, one that has the potential to restore American military prowess in ways we can’t yet grasp.

The proof came with the unmanned-aerial-vehicle (UAV) strike on Taliban leader Mullah Akhtar Muhammed Mansour last week, in which multiple drones were used to track and then destroy Mansour’s car before it entered the densely populated city of Quetta, Pakistan, where a drone strike would been a more difficult and messier affair.

It’s just one of the more than 500 unmanned air strikes Obama has ordered since taking office — compared with just 52 under George W. Bush.

In March, however, Pentagon masterminds raised the UAV game to a significant new level. A raid on a training camp belonging to Somalia’s al-Qaeda affiliate al-Shabab at Raso, 120 miles north of Mogadishu, used multiple unmanned aircraft to blow up no less than 150 jihadi fighters (manned aircraft were also involved). It might not be the first time a drone “squadron” has been involved in an attack on terrorist forces; the Pentagon isn’t letting on. But it does mark a turning point, not just in the war on terror but in how America can envision the future of airpower in more conventional conflicts as well.

In short, we are on the verge of using drones in a sustained air campaign, the type of battle that was typical in World War II and in Korea, when waves of aircraft provided support for advancing ground troops. But this time the ground troops don’t have to be American and the aircraft are all unmanned.