American Consequences - May 2019

The markets keep bouncing back... unemployment is at record lows... but are things really as rosy as they seem? Fresh out of last month's politics issue, we're looking at what comes next for the economy, the presidency, personal liberties... and what could – and will – go wrong.

Blood- Sucking IPOs

My Tesla Car Wreck

SCOTUS Agonistes

I D E A S T H A T M A T T E R E D I T E D B Y P . J . O ’ R O U R K E AMERICAN CONSEQUENCES

THE END OF THE POST-WWII UNIVERSE

THE IMPLOSION OF DEMOCRACY AND FREE MARKETS

MAY 2 0 1 9

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CONTENTS

MAY 2019 : ISSUE 24

LOST? CLICK HERE

AMERICAN CONSEQUENCES

4 Inside This Issue

62 Overheating About Global Warming BY BJØRN LOMBORG

BY STEVEN LONGENECKER

6 Letter From the Editor BY P.J. O'ROURKE

66 Sink or Swim

BY DAN FERRIS

Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Publisher: Steven Longenecker Assistant Managing Editors:

14 What Could Possibly Go Wrong?

72 The Value of Fake News BY JOSH FRIEDMAN

16 From Our Inbox

76 Julian Assange: Political Prisoner BY DR. RON PAUL

20 My Tesla Car Wreck BYWHITNEY TILSON

Chris Gaarde, Laura Greaver Creative Director: Erica Wood Contributing Editors: Bryan Beach, Bill Bonner, Dan Ferris, Josh Friedman, Bjørn Lomborg, Dr. Ron Paul, Ilya Shapiro, Whitney Tilson Newswire Editors: C. Scott Garliss, John Gillin, Greg Diamond Cartoon Director: Frank Stansberry General Manager: Jamison Miller Advertising: Sean Carroll, Jill Peterson Editorial feedback: feedback@ americanconsequences.com

80 Book Grump

30 Negative Rights vs. Positive Rights BY P.J. O'ROURKE

82 Read This

COMPILED BY LAURA GREAVER AND P.J. O’ROURKE

32 Blood-Sucking IPOs BY BRYAN BEACH 42 SCOTUS Agonistes BY ILYA SHAPIRO

84 Featured Contributors

48 Shades of the Past & Future BY BILL BONNER 56 Is a Libertarian Foreign Policy Even Possible? BY P.J. O'ROURKE

American Consequences

INSIDE THIS ISSUE

T he markets keep bouncing back... things really as rosy as they seem? Fresh out of last month’s politics issue, we’re looking at what comes next for the economy, the presidency, personal liberties... and what could – and will – go wrong. Whether it’s Recession 2019 or Biden 2020, it’s beginning to feel like we’re only one disaster away from the “good times” turning bad... Are you prepared? Editor in Chief P.J. O’Rourke starts us off by looking at the death of Classical Liberalism under the boot of post-Capitalist politics... examines why balancing the “needs” of the many with the “wants” of a few often results in some really dumb ideas... and questions the logic of Libertarian foreign policy with the help of General Colin Powell. Legendary short-seller Whitney Tilson cuts through the smoke and mirrors of Tesla’s sky- high valuations and chaotic earnings calls... Best-selling author Bill Bonner speaks with the “ghosts” of America’s economic past and future, and shares their dire predictions... Analyst and editor Bryan Beach sounds the alarm on the parasites draining your retirement... The Cato Institute’s Ilya Shapiro turns a critical eye on the politicization of the Supreme Court of the United States of America... unemployment is at record lows... but are

Value guru and analyst Dan Ferris has a warning for investors riding the recent bull market highs... Congressman Ron Paul rails against the growing threat of government censorship... while Pulitzer-Prize winner Josh Friedman explains why “Fake News” is good for journalism... And our resident anonymous Book Grump reviews and rips the latest best-selling business books... It’s all in our newest issue of P.J. O’Rourke’s American Consequences . We’ve uploaded a PDF suitable for printing to our archive page. And tell us what you think at feedback@ americanconsequences.com. Regards, Steven Longenecker Publisher, American Consequences

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May 2019

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LETTER FROM THE EDITOR

“It’s the END OF TH WORLD”

May 2019

From Editor in Chief P.J. O’Rourke

P eople are always saying this... especially people my age. Marcus Tullius Cicero, born in 106 B.C. and therefore even older than I am, is famous for his declaration that the world was going to hell in a hand basket, “ O tempora! O mores! ” (“Oh, what times! Oh, what behavior!”) The trouble is... sometimes Cicero and I are right. Cicero, the greatest orator of the Roman Republic, was denouncing the political conspirator Catiline. Catiline was a “reformer” who ran for the Roman Consulship on a platform – this will sound familiar – of increased benefits for disadvantaged plebeians and tabulae novae (“clean slates”) universal debt cancelation. Then, when he lost the election, he tried to overthrow the Roman government. Catiline was the SPQR Bernie Sanders. Except, as a social-justice warrior, Catiline actually was a warrior and his army of supporters really was armed – with swords instead of bongs, hacky-sacks, and $5 campaign contributions.

CLICK HERE TO READ THEWEB VERSION

“O tempora!

O mores!”

Oh, what times! Oh, what behavior!

American Consequences

LETTER FROM THE EDITOR

“Liberty means free and responsible

Rome’s legions killed Catiline in 62 B.C. But the Catiline Conspiracy was just one episode in a long stretch of Roman political polarization and vicious partisan in-fighting that resulted, in 44 B.C., in Julius Caesar being made dictator for life. That didn’t last long... Caesar was assassinated the next month. Nevertheless, Cicero was right (and also dead in 43 B.C. by order of Augustus, the next Caesar). After almost 500 years, that was the end of the world for the Roman Republic. And this is the end of the world for Classical Liberalism. Civil liberties. Free speech. Property rights. Rule of Law. Representative democracy. Free enterprise and free trade. These are the ideas of Classical Liberalism. Since 1776, the fortunate among us have been living in places where those ideas were embraced. Yes, sometimes it’s been an awkward embrace. We’ve watched Classical Liberalism get a clumsy “Joe Biden hug” from advocates for greater political interference in private life. When it comes to Classical Liberalism, “populists” want the Classical to be more pop, and “liberals” want the Liberal to dispense largess more liberally. But the core ideas persisted, and they produced excellent results. In the middle of the last century, fascism was defeated and its totalitarian sister ideology, communism, was contained by Classical Liberalism.

individuals.” Free and responsible

Classical Liberals caused “Imperialism” to be booed off the world stage – reduced to making guest appearances in the prattle of poli sci class academic phonies. Classical Liberals changed “Colonialism” from an international villainy into international tourist destinations like the British Virgin Islands. In the 1980s, the tower of human misery constructed by the communists fell on its architects. Lenin, Stalin, Mao, and Pol Pot joined Hitler, Mussolini, and Tojo in the collapsed basement of Hell. The personal freedoms embodied in Classical Liberalism went a long way toward destroying all the other theoretical justifications for oppression such as segregation, apartheid, and theocracy. Given a chance, Classical Liberalism could even banish prejudice and bigotry. Liberty means free and responsible individuals. Free and responsible individuals have a lot to do – exercising their freedoms and individuals have a lot to do – exercising their freedoms and shouldering their responsibilities.

May 2019

shouldering their responsibilities. No set of principles, however noble, can prevent people from detesting one another, but Classical Liberalism can keep people otherwise occupied and engaged. An example from the 1960s: During the height of the civil rights struggle, Atlanta’s sort-of-but-not-really pro-integration mayor, Ivan Allen, came up with a weasel- word slogan to indicate that the local white establishment, although not fully reconciled to civil liberties and equality before the law, was willing to – as it’s called these days – move on: “Atlanta, a City Too Busy To Hate.” We would hate – but we’re just so busy ! Under the aegis of Classical Liberalism, Earth thrived. Global per capita GDP went, in inflation-adjusted dollars, from $3,900 in 1950 to $17,300 in 2017. Thank you, civil liberties, free speech, property rights, rule of law, representative democracy, and free enterprise and free trade. As the tenets of Classical Liberalism spread, the governmental practice of oppression seemed to be fading. In 1945, only the lucky few could be called citizens of a free country. Today, 39% of the world’s population has political freedom, another 24% has partial freedom, and 74% of the world’s 195 nations are at least free enough to give Classical Liberalism a try. So says Freedom House, the nonpartisan advocacy organization for democracy, which is so nonpartisan that it was founded in 1941

by defeated presidential candidate Wendell Willkie and Eleanor Roosevelt. (Such, at one time, were the powers of faith in Classical Liberalism... Imagine, today, an advocacy organization founded by Hillary Clinton and Melania Trump). Classical Liberalism has had a good run. Now it’s about to get run over... by a bus full of stupid “post-capitalist” political trends – the new socialism, the new nationalism, the new trade-war mercantilism, and the new social media platforms that drive this bus. Vladimir Putin, Xi Jinping, Donald Trump, and the countless candidates running for the 2020 Democratic presidential nomination are all on board. So are the Brexiteers and so, for that matter, are the maniacally micro-regulating bureaucrats of the EU that the Brexiteers want to leave. Wave goodbye to Classical Liberalism. Or you could just wave at the camera you’re facing on your phone or computer. Too late to put a sticky note over it. Your civil liberties are already gone, swiped left. Neither a click falls on a keypad nor a finger taps a touch screen without the Internet seeing. You are a fly caught in the World Wide Web. Classical Liberalism gets eaten by a Surveillance State. Civil liberties – and the free will needed to exercise them – are impossible when someone knows everything about you. And someone does... Probably it’s just that twerp in a T-shirt Mark Zuckerberg, who has got your every word, worry, action, attraction, emotion, motion, and notion stored in the Cloud. But

American Consequences

LETTER FROM THE EDITOR

how long before a more serious person – or thing – hacks in and starts running your life? (Kamala Harris, Jared Kushner, George Soros, the NSA, the UN, the alt-right, the IRS, the Bavarian Illuminati – you can bet that what hacks you will be the person or thing that keeps you up at night.) And how do you know they haven’t done it already? How hard can it be? The Internet treats user privacy with the same respect that snakes get in a cage at a carnival sideshow. And Zuckerberg is a 35-year-old still wearing his underwear in public. His mother no doubt writes his password on the waistband of his Y-fronts with a laundry pen. Plus, the average cost of an Internet connection in the U.S. is $67.17 a month, so free speech isn’t free anymore, anyway. Property rights will be next to go. Here, too, the Internet aids and abets, particularly in the destruction of intellectual property rights. “The Internet treats user privacy with the same respect that snakes get in a cage at a carnival sideshow.”

Take it from me ... I spent 40 years as a print journalist. “Content Is Free” – that’s the founding concept of the Internet. Now I’m a “content provider.” And... Content Is Free . Our remaining property rights – that is, our rights to physical property – will be sacrificed either to the campaign for income equality or to the campaign against climate change. This depends on which end of the world comes first – everybody on Earth in bankruptcy court (total global debt is now $244 trillion, three times the size of the world economy) or everybody on Earth crammed into the last 1,878 vertical feet of Mt. Everest because of the rising sea level. In the former case, a horde of people will show up at polling places under the impression that voting machines are like the slots at Mohegan Sun. If they pull the lever often enough, there will be a huge payout. The Internet tells me (for free) that, using the broadest definition of “money” (cash plus all banking and money-market account balances), there’s about $80 trillion in the world. The world’s population is 7.5 billion. Dividing it equally, we each get $10,666.67. We’ll blow through that pretty fast, and the aftermath will be interesting. I’d make some technical recommendations about what to do in this situation, but the Second Amendment is just one more property right soon to be dispensed with. In the latter climate change end-of-the-world case, we’ll all die, which makes abiding by the principles of Classical Liberalism extra hard. But before we die, we’ll panic.

May 2019

to me that breathing isn’t like burning fossil fuels because breathing doesn’t involve “sequestered carbon.” But I’m as dumb as the next voter and don’t know sequester from Ryan Seacrest. Or, anyway, I’m as dumb as Elizabeth Warren who, when she introduces the federal law against breathing, will tell us that only the rich have to hold their breath.) Your possessions will go away. And, since “possession is nine-tenths of the law,” the rule of law goes with them. (That “nine-tenths” adage isn’t just about squatters’ rights or who has borrowed the car. The first purpose of law is to protect property, and foremost in protection comes that property most precious to you: your ownership of yourself as a free person. Without property, there is no freedom.) If rule of law goes away, so does representative democracy – the legal system of checks and balances that’s entrusted with both guidance by majorities and protection of individuals. When government takes ownership of everything, the result is either the terror of collectivism or the horror of crony capitalism or, as in China, both. The checks bounce, and the balances are weighted by the thumbs of special interests. Also, lacking civil liberties and property rights, representative democracy is left with nothing to represent except the will of the mob or – as it’s called these days – “activism.” We already live in a country where activists are snatching the role once played by duly elected and duly appointed officials. When Dr. Frankenstein is up to something in his castle, does modern America send the

I understand why people are bothered by climate change. It bothers me four times a year – arthritic winter, allergic spring, summertime bedroom A/C window unit falling out and smashing the patio furniture, and my Harris Tweed sport coat full of moth holes in the fall. But we’ve let our annoyance be turned into abject fear. I’m sure our Earthly home could use some tidying, climatologically. But when the house is a mess, you get out the mop and the broom... You don’t call 911. In our panic, we’ll demand strict government regulation to prevent carbon emissions. And most carbon emissions result from the exercise of property rights. Among the property that belongs to you is a pair of lungs. The Internet tells me (for free again) that those lungs emit 2.3 pounds of carbon dioxide a day. Multiply by world population, and that’s 17.25 trillion pounds of carbon dioxide, which is much more than the 209 billion pounds of carbon dioxide that burning fossil fuels emits daily. You can see where the regulatory direction is headed... Exhaling to be allowed by licensed permit only, and deep sighs forbidden under any circumstances. And, speaking of exercising your property rights, the lungs of long-distance joggers, gym rats, hot yoga practitioners, and others who engage in vigorous physical activity can emit as much as eight times the average amount of CO 2 . The police would run you down, except that would cause even more global warming, so they’ll shoot you from a distance. (Yes, yes, I know... The experts try to explain

American Consequences

LETTER FROM THE EDITOR

“Democracy faced its most serious crisis in decades... as its basic tenets – including guarantees of free and fair elections, the rights of minorities, freedom of the press, and the rule of law – came under attack around the world.” The grocery store requires free speech to advertise its specials. You could be paying twice as much for the corn tortillas as you would have paid at the other grocery store down the road. Except, without property rights, there might not be another grocery store down the road. In fact, there might not be any grocery stores at all. You’ll have to wait for dinner until there’s a government taco handout. Furthermore, absent rule of law, just how old is that guacamole? And lastly, although you might not think representative democracy would come into play at the checkout counter, what if Elizabeth Warren becomes America’s Julius Caesar and the kid who’s bagging your groceries gets denounced O tempore! O mores! for not sequestering your carbon?

county building inspector to check if the electrical wiring is safe? Not when a large group of activists with pitchforks and torches is available to chase Dr. Frankenstein back to the local urgent care facility and make him provide Medicare for All. As I mentioned, the collapse of Classical Liberalism is by no means just an American problem. The same Freedom House that brought us the good news about the growth of democracy since World War II brings us bad news in its most recent report, “Freedom in the World 2018:” • Democracy faced its most serious crisis in decades... as its basic tenets – including guarantees of free and fair elections, the rights of minorities, freedom of the press, and the rule of law – came under attack around the world. • Seventy-one countries suffered net declines in political rights and civil liberties, with only 35 registering gains. This marked the 12th consecutive year of decline in global freedom. And how will the end of the Classical Liberal world affect free enterprise and free trade? Imagine even a trip to the grocery store without Classical Liberalism. How about Mexican tonight? But first, you need civil liberties just to leave your house. And no matter what you think about immigration, if Latin-Americans didn’t have civil liberties, you wouldn’t know squat about Mexican food. You’d be making tacos by rolling liverwurst in Aunt Jemima pancakes and seasoning it with pumpkin pie spice.

May 2019

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WHAT COULD POSSIBLY GO WRONG?

Financial follies and disaster in the making

optimistic comments from the president and several White House officials. Unfortunately, the good times didn’t last long... U.S. stocks opened deeply in the red again earlier this week, following news that China had retaliated against the latest U.S. tariffs overnight. According to the Wall Street Journal , China raised tariffs on roughly $60 billion worth of U.S. goods in retaliation for President Trump’s decision to escalate tariffs on Chinese imports. These tariffs will increase to 10%, 20%, or 25% for most of the 5,000-plus U.S. products on which China already imposes levies of 5% or 10%. Items like animal products, frozen produce, and seasonings will be charged at 25%, while baking condiments, chemicals, and vodka will be charged at 20%. Tariffs will stay at 5% for certain items, including vehicle parts, medical equipment, and farm equipment such as tractors.

China strikes back...

Last week, U.S. stocks sold off as the “trade war” with China suddenly escalated again... In early May, following weeks of positive talk from both sides, President Donald Trump unexpectedly threatened to raise new tariffs on Chinese imports. Days later – and just two days before officials were set to meet to finalize a deal – we learned why: China had suddenly “backtracked” on months of negotiations. Finally, on Friday, May 10, these new tariffs went into effect just as President Trump had warned... And the Chinese trade delegation left Washington, D.C., without a deal or definite plans to return. If there was a bright side to this mess, it was that the markets ended the week on a relatively positive note. Stocks reversed their morning losses and closed in the green on that day, following another round of

May 2019

The Journal also reports that China is not targeting goods that aren’t currently subject to tariffs... exports like Boeing jetliners and U.S. crude oil. Of course, President Trump was less than thrilled by any of this... He replied with yet another barrage of tweets in response. “China should not retaliate-will only get worse!” he wrote in one. “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!” he said in another. Unfortunately, there wasn’t any late-day reprieve for stocks after this latest spat. The benchmark S&P 500 Index fell 2.4% that day (Monday, May 13), its worst one-day decline since January. Now, it’s worth noting that neither of these measures have actually taken effect just yet... The U.S. tariffs were applied to goods leaving China beginning May 10. The first of these items won’t arrive in our country until a couple of weeks after that. Meanwhile, China’s retaliatory tariffs don’t take effect until June 1... So there is technically still time for a resolution to be reached. We certainly hope that further escalation can be avoided. But given the events we’ve seen to date, we aren’t holding our breaths. We suspect this situation – and the resulting market volatility – could get worse before it gets better.

Return of the living debt...

Today, there are more “zombie” companies in corporate America than ever before... A zombie company is a company that doesn’t make enough money to even pay for the interest on its debt. It has no hope of ever paying off its debt. They are the “walking dead” of the American economy. The only thing keeping them alive is banks with low lending standards that are willing to extend them credit. This practice is known as “extend and pretend” because the banks are willfully ignorant to the fact that these loans can’t all possibly be repaid. Without the banks rolling over (or refinancing) their debt, these companies would cease to exist. According to a study by the Bank of International Settlements (“BIS”), the number of zombie firms has increased sixfold since the mid-1980s, and one in six U.S. companies is now a zombie. Imagine how many zombies there would be if companies had to pay reasonable interest rates... or if the economy hadn’t been humming along. The number would likely be much higher. If banks suddenly denied credit to the zombies, a tidal wave of American companies would go bankrupt. The result would be skyrocketing default rates... massive credit losses... bond investors rushing for the exits... and the economy grinding to a halt. “Extend and pretend” is propping up the entire U.S. economy, but this game can’t go on forever... When this debt does go bad – and it will – investors will be left holding the bag.

American Consequences

FROM OUR INBOX

She was promised about a $5000 grant toward her loan debt if she promised to teach in Title I schools for 8 years. These are some of the most horrific schools in Jacksonville, Florida. As she worked toward that goal, she paid and still pays on time, every month and has never taken a deferment or gone into forbearance. Every time she contacts the lenders to see about reworking her loans and hopefully get them in a more manageable shape, they talk in circles and don’t explain anything. So, after 10 years she is still teaching in Title I schools, has received no grants or credits to her loan, and her loan principle has not gone down at all! Similarly, my granddaughter was being lured by the Art Institute for classes there and she really wanted it bad... but they wanted her to start paying a $500-plus note right away, before school even started. She lucked out by attending a local junior college. But I see a lot of these For-Profit “colleges” pop up around town and then a few years down the road they close their doors and the students are left scrambling for transferable credits and get no money back. That’s really messed up. I understand that they have been lured in by the pitch like my granddaughter, but they apparently had no one like me scouring over their FAFSA. So... my suggestion to ALL politicians is to concentrate on the lending practices of

Re: Our Newest Readers Weigh In AC has become one of my favorite reads. Even if P.J. ever has an off month (highly unlikely), the rest of the writers more than make up for it. – Dave C. The articles are insightful, thorough, and interesting! Please keep them coming! – Cliff F. P.J. O’Rourke comment: Dave and Cliff, we love you. (And would you mind if we clone you 10,000,000 times?) Re: Our ‘Politics’ Issue I am a registered Democrat and I don’t really want America to become a Socialist state, but I have some genuine concerns about the Student Loan Debt. Here’s why. My daughter went back to school after a divorce and was pushed by voice teachers to go to Florida State University. It was very difficult for her to be away from home AND be a non-traditional student. She resided for a time in a church sponsored house, but eventually found a roommate and moved into an apartment. She received no grants, so she took out several loans to cover school expenses and to subsist. She ended up foregoing the Voice Performance route as a very gifted mezzo- soprano, and became a teacher.

May 2019

Re: Red Scare: Millennials and Socialism Free college, free health care, free, Free? Who is paying for this? The Tax Payers. Who are paying billions a year for support of Illegals, Welfare, Medicaid, etc. Time to wake up. – Holly A. P.J. O’Rourke comment: What you say, Holly! “There’s no such thing as a free lunch.” As a sidelight, I looked up that phrase. The saying goes back at least to 1892 when it was used in a speech by Robert Ingersoll, one of the great public intellectuals of the day. Ingersoll was a combat commander in the Civil War and a great humanist and Attorney General of Illinois and a religious agnostic and a staunch Republican and a good friend of Walt Whitman’s. I’d love to assign him a piece for American Consequences except he’s been dead for 120 years. ( There’s No Such Thing as a Free Lunch is also the title of an excellent collection of columns by Milton Friedman published in 1975.) Well, we’ve reentered the era of almost unregulated capitalism and that’s proving to be a social nightmare. The millennials are a generation without much hope for mobility – they are soft gloved indentured servants (metaphorically speaking) – they can’t get out of debt. – Richard Z. P.J. O’Rourke comment: I beg to differ, Richard. We’re in an era of highly regulated capitalism and have been for a while. But that’s not to say I disagree with the second half of what you say. Fans of regulation, like Elizabeth

the Student Loan business (including the government). These “Millennials” are not looking for a free ride, but it would greatly help their livelihoods (what school boards call living expenses), if they knew that their elected officials were working in their favor. I know not all of them were duped, but those that were are looking for help – any kind of help. They are drowning in quick sand from trying to meet their responsibilities and they expect their government to at least – AT THE VERY LEAST – to look into the lending practices of all schools, public and private. That’s all. I hope you read to the end. – Margo F. P.J. O’Rourke comment: Margo, I don’t care if you’re a registered extraterrestrial, you speak truth! And your letter deserves something better than a reply from the editor – it deserves to be published. Therefore, here it is in print. I will, however, put my 2 cents in about college educations not being worth nearly as much as they cost – especially for those with creative talents like your daughter and granddaughter. Experience is a better school for talent than school is. (I have a – completely worthless – MA in Creative Writing.) I wish I could hear your daughter sing and watch your granddaughter draw unburdened by their worries about education debt. People with creative talents have a hard enough time making a living as it is.

American Consequences 17 American Consequences 17

FROM OUR INBOX

is... Vernon, have you looked at the world?... There are a lot of really bad people out there and they want to do a lot of really bad things. [Millennials] favor Universal healthcare and tuition free college. That does NOT make them a socialist any more than someone who supports building a “Wall” or the police. America has numerous socialist programs right now and we are not a socialist country. America is a Hybrid of free market/ Socialism and has been that way our entire lives. Adding new services does not turn us into a 100% socialist country. Stop with Hyperbole. – Aaron C. P.J. O’Rourke comment: Okay, Aaron, we’ll stop with the hyperbole (dictionary definition: “exaggeration for effect, not meant to be taken literally”) and agree with you that the U.S. is not “a 100% socialist country.” Yet. But the federal government does spend 21% of the U.S. GDP and state and local governments spend another 15% for a total of 36%. This total was about 7% at the beginning of the 20th century, about 20% in the depth of the 1930s depression, and below 30% from WWII until the late 1970s. You can fail to see the trend if you like. Re: If the Dems Win 2020 If the left-wing Dems can’t get next to Biden, then they will get four more years of Trump. – David P. P.J. O’Rourke comment: Or, if the left-wing Democrats get too next to Biden he’ll hug them – setting off outraged #MeToo protests, then they will get four more years of Trump.

Warren, claim that capitalism gives off a bad smell. But before we take their word for it maybe we should consider the old schoolyard rhyme, “ The fox is the finder/The stink lays behind her .” Seems to be, because socialism gives a false sense of security, they imagine they can put in minimal, or nothing... and still be taken care... It’s the lazy man’s dream until it becomes his nightmare... – Martina M. P.J. O’Rourke comment: You go, Martina! The lesson of history is that socialism is the lazy man’s dream right up to the moment he’s sent to a forced labor camp. Socialism? We’re soaking in it. Capitalism as a form of economy won’t disappear in our lifetimes but reforms in society are overdue. – Joe T. P.J. O’Rourke comment: Joe, let’s not forget that the socialists claim those forced labor camps are “reforms in society.” Why is everybody seemingly afraid to mention the obvious solution to funding political dreams? We could easily redirect 80% of our military procurement budget without incurring any genuine risk. That’s a lot of money to spend on AOC’s visions. – Vernon H. P.J. O’Rourke comment: My idea of how much to spend on AOC’s visions would be -0$, if there were such a number. As to your point about military spending, sure a lot of it is wasteful but that’s not the main reason the defense costs are so high. The main reason

May 2019

America is destroyed from within by a group of idiots, I become a land pirate, and get a new dog. – Mike G. P.J. O’Rourke comment: I’m with you, Mike, about the dog, preferably a large, vicious one. But I have yet to figure out how to get the muddy hillside I own to sail the bounding main. Please advise. This is a pivotal election. It will determine the direction of America for decades maybe even lay the last nail in her coffin if a socialist/Progressive democrat should win AND the congress become a majority of Dems as well. – Ken M. P.J. O’Rourke comment: Ken, you can become a land pirate with me and Mike. Know anything about sailing a 100-acre hay field? Send us a message, question, or criticism at feedback@americanconsequences.com.

Yawn... the same Party needs to control the presidency AND both houses in Congress and even then, as the GOP demonstrated, it’s still a challenge to pass a bill. – Peter B. P.J. O’Rourke comment: Yawning is okay with me. The Cato Institute has done research showing that no matter which branch of government is controlled by which party, government spending grows more slowly when the two branches are under divided control. Peter, are you sure we want them to pass bills? We will be DOOMED!!! America as we know it will become Venezuela... – Kelli H. P.J. O’Rourke comment: Well, Kelli... Argentina anyway. Fortunately I speak Spanish. “ Una cerveza mas por favor. ” Albeit that’s all the Spanish I speak. But it’s enough to get me through the night. Buy guns now... every time a Democrat wins gun sales and prices go up... a solid investment. – Faron H. P.J. O’Rourke comment: That’s what Remington thought, Faron... Then Trump got elected and Remington filed for Chapter 11. What happens if Trump wins is that we can officially wave goodbye at democracy. – J.M. P.J. O’Rourke comment: Or give it a chilly “Hello.” Sorry to say, J.M., but, technically speaking, democracy remains democracy even when the majority of voters are wrong. I’m no big fan of Trump myself. But I doubt if I’m going to be a big fan of whomever the Democrats run either. I’m afraid I’ll be right back where I was in 2016: “I’m not happy that he won, but I’m glad that she lost.”

American Consequences

ByWhitney Tilson

May 2019

It was the worst short of my nearly two-decade career running hedge funds... I shorted Tesla around $35 a share in early 2013 and didn't throw in the towel until after it had soared to $205 a share a year later. It cost me $5 million and was the most expensive mistake of my career.

American Consequences

I only make big calls when three things line up perfectly to create what I call an “inflection point”: the fundamentals, my “scuttlebutt” research, and my read of investor sentiment. In the case of Tesla, the fundamentals are terrible, the research provided on Twitter and elsewhere by a small army of amateur analysts reveals that demand is weak and inventories are piling up, and I sense that the number of investors who are losing confidence in Musk is finally exceeding those who are drinking his Kool Aid. Tesla shares were trading at $295 at the time. Six and half weeks later, they closed at $234.54 today, already down more than 20%... And I think they have much further to fall. The number of investors who are losing confidence in Musk is finally exceeding those who are drinking his Kool Aid. To be clear, I am not hoping that Tesla fails. Rather, I am predicting that its shares will collapse. Musk is an incredible entrepreneur and visionary who has created two companies that are changing the world. Tesla makes great cars. I enjoy driving them, and every one of my friends who owns one loves it. More important, Tesla has almost single-handedly forced every major auto manufacturer in the world to invest billions of dollars into

After I covered, I warned all of my friends not to short the stock. It was an open-ended situation, with a visionary, entrepreneurial founder and CEO, Elon Musk. Musk was leading a team of brilliant engineers, developing groundbreaking products in two of the world’s largest markets – autos and energy. Plus, the stock had a cult-like following of investors who didn’t care if Musk behaved erratically and consistently overpromised. These are the ingredients of a dangerous short. For five years, I stood on the sidelines, closely following the epic battle between Tesla bulls and bears. Then I saw what I believed was the “inflection point” for the stock. In March, I made one of my rare big calls, writing... I’ve been following [Tesla] closely for years and, after carefully reviewing everything over the weekend (including the transcript of Musk’s [regulation-violating] call last week), today I’m making one of my rare big calls: we will look back on last Friday as the beginning of the end for Tesla’s stock . I think Musk has no more rabbits to pull out of his hat, and therefore, it’s all downhill from here. I predict that by the end of the year, the stock, today at $295, will be under $100. I don’t make calls like this very often. The last two were bitcoin the hour it peaked at $20,000 on December 16, 2017... and Tilray (TLRY) the hour it peaked at $300 last September 19...

May 2019

developing electric cars, which is great for humanity. We all owe Musk a debt of gratitude. But unlike many other investors, apparently, I’m able to separate these “warm and fuzzy” feelings from an unemotional, rigorous analysis of the company and the likely outcome for the stock. Ironically, I believe that Tesla is about to get crushed by the many competitors it poked into action. While Tesla has an edge in some areas, like driving distance per battery charge, competitors’ cars have many advantages – including better service networks, luxurious interiors, and the “newness” factor. The Audi e-tron, Porsche Taycan, and Jaguar I-PACE represent the biggest threats, followed by highly anticipated offerings from BMW, Mercedes-Benz, and others. To summarize, Musk has taken his company off a cliff. As more investors wake up to this reality, the stock is going to plummet as the company struggles to sell its cars and starts to run out of cash. Recent events – concluding with first-quarter earnings, which Tesla released April 24 (discussed below) – have only reinforced my belief. Lately, it’s almost a full-time job keeping up with all of the major news about Tesla. Here are the recent highlights, with my thoughts... THE SEC VS. MUSK On February 25, the U.S. Securities and Exchange Commission (“SEC”) filed a contempt of court motion against Musk,

saying his February 19 tweet about how many cars Tesla would produce this year was a “blatant violation” of the settlement they’d struck with him last year after his infamous “funding secured” tweet. I attended the hearing in April, where the judge gave both sides a week (later extended another week) to resolve their dispute. In the end, both sides agreed that Musk must “obtain the preapproval of any experienced securities lawyer” before tweeting or posting to social media... an uncertain outcome in light of Musk’s ego and arrogance. Thus, there’s a chance – albeit small – of a bad outcome for Musk, Tesla, and the stock. As more investors wake up to this reality, the stock is going to plummet as the company struggles. Regardless of what happens, Musk’s behavior underscores his negligent and impulsive nature – exactly the opposite of what is needed during this time of extreme stress for the company. CARS CATCHING FIRE A video of a Tesla Model S in a garage in Shanghai suddenly bursting into flames last month has gone viral. One report indicates it was caused by a short-circuit. Tesla is investigating. This comes on the heels of a widely reported crash in Florida in which a 2016 Model S

American Consequences

are selling all the shares they can, as fast as they can. If they thought the company and its stock had bright prospects, it’s hard to imagine they’d be leaving the board and dumping shares. A final clue that this is bad news is how Tesla disclosed it... via an SEC filing, not a press release, and after the close on Good Friday – the perfect time for an announcement you hope no one will notice. TERRIBLE FIRST-QUARTER EARNINGS The company reported a $702 million loss in the first quarter of 2019 – double consensus expectations – and guided for another loss in the second quarter. It was so bad that Wedbush analyst Daniel Ives, who was once bullish on the stock, wrote... To this point, in our 20 years of covering tech stocks on the Street we view this quarter as one of top debacles we have ever seen, while Musk & Co., in an episode out of the Twilight Zone, act as if demand and profitability will magically return to the Tesla story. Ives said he was “throwing in the white towel” and downgraded the stock. The cash flow statement was equally bad, as the company had negative $640 million in cash flow from operations. It spent an additional $280 million in capital expenditures, for a total cash burn of $920 million. That’s a huge reversal from the previous

hit some trees. The driver survived but was burned to death when the battery caught fire and emergency responders couldn’t open the doors because Tesla’s famous recessed handles failed to deploy after the accident. It’s hard to know if anecdotes like these are indicative of bigger problems or whether they will affect Tesla’s brand and reputation – but they sure don’t help. I’ve never seen executive departures like this... More than 88 executives at Tesla have left the company since January 2018. And overall, the departures are heavily skewed in the legal and accounting areas of the company – exactly what one would expect to see if fraud is occurring. Even if it’s not, it’s hard to imagine that Tesla is well-positioned to navigate its current troubles (financial or otherwise) with an inexperienced, 34-year-old CFO. Last Friday, Tesla disclosed that four members of its board of directors would depart, which will shrink the board from 11 to seven members. While bulls note that they will serve until the end of their terms and argue that a smaller board will improve governance, my gut tells me they’re fleeing what they believe to be a sinking ship... Unexpected, en masse board resignations are one of the most classic and time-tested warning flags that experienced investors look out for. Worse yet, these board members MASSIVE HIGH-LEVEL TURNOVER

May 2019

quarter, when Tesla reported $210 million in profit and generated positive $1.24 billion in operating cash flow. That led Musk to say on the conference call in January that he was “optimistic about being profitable in Q1 and all quarters going forward.” Oops. Believe it or not, the quarter could have been much worse. On that same call, Musk admitted... Over half of our global deliveries [are] occurring in the final 10 days of Q1. This was the most difficult logistics problem I have ever seen and I have seen some tough ones. So I will say it again... We literally delivered half of the entire quarter’s deliveries were [sic] in the final 10 days of Q1. That’s insane. Tesla board members are selling all the shares they can, as fast as they can...

For once, I think Musk is telling the truth. I agree with him: It is insane to deliver more than half of a quarter’s deliveries – worth roughly $2 billion – in the last 10 days. WEAK DEMAND I’d be willing to overlook Musk’s erratic behavior, the operational chaos, executive departures, etc. if Tesla’s cars were still selling like hotcakes. But all of the evidence I can find shows that, now that Tesla has fulfilled the backlog for the Model 3, demand has fallen off a cliff. Musk has promised that deliveries will rebound strongly from the first quarter’s dismal number of only 63,019 cars to between 90,000 and 100,000. But I think the company will be lucky to match that number of deliveries in the second quarter. As you can see, the first quarter was weak...

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SLUMPING DEMAND IN NETHERLANDS AND NORWAY In most countries, there’s usually at least a month lag time to see public data on car sales. That’s not the case in Norway and the Netherlands, because both countries report each day’s sales the next day on a public website. Norway in particular is important because it’s by far the largest market for electric cars in Europe. Thanks to huge government subsidies, electric vehicles were 58% of total car sales in March. Tesla had a strong first quarter in both Norway and the Netherlands, as ships full of the first Model 3s arrived to meet the backlog of demand, making it the best-selling electric car in both markets. Since then, sales have fallen off a cliff. As my friend Anton Wahlman reported last month... April is off to a horrible start for Tesla in

DEPOSITS PLUMMET In past years, Musk was able to attract

hundreds of millions of dollars in deposits – which are effectively free unsecured loans to the company – by announcing a new car. Yet when he tried that last month with the Model Y reveal, it was a total bust. When an analyst on the call asked why customer deposits were down, Musk dodged the question, answering, “I think we don’t want to comment on the granularity of deposits. Again, people read too much into this. We’re not playing off the Model Y because we’re just not in production so you can’t really read anything into Model Y orders at this point.” What nonsense! When Tesla was deluged by customer deposits for the Model 3 (which can be seen in the chart below, Musk was tweeting about it constantly. His silence now speaks volumes.

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