TESLA RAISES CASH
Last week, in the editorial, BOOM wrote regarding the electric car company Tesla ….. “the company will have to raise more capital via a further share issuance or bond issuance sometime in the next 2 years, depending upon sales growth”. Hey presto, Tesla made an announcement soon after on Thursday and another announcement on Friday, that it was issuing fresh new bonds and shares to raise a possible total of $ 2.3 Billion in new capital.
The share price rose 8.46% for the week on this news but, at the close of trade on Friday, it still had not recovered the previous week’s opening price. This burst of enthusiasm was presumably based upon the fact that the capital raise was underwritten by a group of major banks.
This action will bring some relief to the worrying decline in Tesla share price since early December. But will it be enough to carry the company forward to positive cash flow? Car manufacturing is a very capital intensive business. The big competitors will soon launch their full attack on this market and then it will become more difficult for Tesla to dominate the sector. Watch this space. Investors will have to be brim full of confidence that Tesla can beat off the likes of VW, Mercedes Benz, Toyota, GM, Ford, Nissan, Porsche, Audi and the new car companies from China.
INTEREST RATE SETTINGS
YELLOW VEST PROTESTS
The Federal Reserve and the Bank of Canada did not raise their interest rates last week, preferring to keep them on hold. Over the last 2 weeks, the central banks of the US, Canada, Hungary, Armenia, Russia, Sweden and Turkey have all kept their key interest rates on hold.
This is no surprise to BOOM and BOOM readers. The low growth, low CPI inflation, low interest rate world established way back in 2008 is persisting just as BOOM has said many times. This is the Brave New Economic world in almost all advanced economies of the world. Almost all politicians and central bankers in those economies have not yet worked that out. They continue to forecast, in optimistic terms, a “return to growth” and a “watchful eye on the risk of rising CPI inflation”. BOOM is not aware of any that say the opposite. The politicians, in particular, also have very optimistic expectations of taxation revenues continuing to increase as they did in the long era of economic expansion from 1945 to 2008. BOOM wonders how long it will take before the political class have to level with the people and finally admit that they cannot “create jobs and economic growth”. Trump in the USA is being protected from the truth by the effect of massive deficit spending. But the US central bank, the Federal Reserve, is aware of this dynamic and they are much more wary now of predicting increased growth and CPI inflation.
The Yellow Vest people in France are ahead of the game. They have realized that everything has changed and they are out on the streets every weekend protesting that the capitalist plus welfare economic system no longer works for them. The Yellow Vest protests have now been ongoing for almost 6 months with 4,000 injuries, including severe eye injuries, and 15 deaths occurring.
In the UK, the Brexit Party will put the Government to the test in the European elections in three weeks time. The outcome could be very embarrassing to the Conservative Party. Again, it appears that the people following Nigel Farage have woken up to the fact that their democracy is not functioning as one representative of the majority’s wishes. Economic hardship and uncertainty is almost certainly a driving force in this protest movement just as much as in France.
BANKRUPT US FARMERS
Meanwhile, in America, there are record numbers of farmers moving into bankruptcy. In seven of the large farming states, the bankruptcy rates are at their highest levels since the financial crisis in 2008. Farm incomes fell by almost US$ 12 Billion over the last year. Farm aid payments from the federal government amounted to just $ 7.7 Billion.
“We’re doing trade deals that are going to get you so much business, you’re not even going to believe it,” Trump said in a meeting of farmers in New Orleans earlier this year. Since then, things have just gotten worse.
The Agriculture Fund ETF (DBA) that is traded on the New York stock exchange has declined in price from $ 29 in 2014 to $ 16 now. That is a 45% fall in prices. DBA tracks an index of 10 agricultural commodity futures contracts.
CHINA 5G EXPANSION
The high tech Hub in China, Shenzen, is building about 7,000 5G base stations this year. The city also plans to launch 5G for commercial use by 2020. 5G Smartphones and 5G tablets will be launched gradually from the middle of 2019. The city is also actively promoting the deep integration of 5G with other technologies and products to build a cluster of 5G industry.
5G technology is fifth-generation mobile telephone technology. Its operational speed is designed to be much faster than the current technologies (2G, 3G, and 4G). Higher upload speeds, faster download speeds, lower costs and application to the Internet of Things (IOT) will drive the 5G technology market.
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HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR
(but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans”
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
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