The Tesla Factory and the Purpose of the Stock Market

Tesla Motors’ stock offering on Monday raised more than $1 billion that the automaker will use to purchase a factory and set up manufacturing for its next car models.

Critics of the stock have complained that Tesla is not a real company — “it doesn’t even have a factory yet,” never mind a track record. I believe these critics have forgotten how capitalism works.

The point of capitalism is not to gamble by buying and selling pieces of companies. It is supposed to create companies by putting all the resources that are needed together to set up something new.

Tesla has had car designs sitting around for years because it hasn’t had a place to build them. Now that will change, and if the designs are half as good as Tesla thinks, it will be a profitable company. And, if its designs are twice as good as anyone expects, the other auto makers will be rushing to catch up. The whole idea of a stock market is supposed to be that a company like Tesla can set up a factory and start making cars.

It depends, more than anything else, on the quality of the engineering work. But none of Tesla’s detractors on Wall Street are offering any criticisms of the engineering. They don’t seem to know the first thing about the engineering that goes into a design of a car. This may be why they are criticizing the company’s limited track record instead.

A track record doesn’t mean as much when the world is changing so rapidly. Investing in a track record is investing in the past — which is to say, it isn’t really investing at all, but more like a faint hope of cleaning up somehow after the real investors have already left the room.

Hurricane Track: No Sigh of Relief for Central Gulf Coast

A hurricane is forming today in the Gulf of Mexico, but modern weather forecasting is so advanced that the oil industry is breathing a sigh of relief at the forecast track of the hurricane. The forecast takes the hurricane toward the Rio Grande valley, well away from the Mississippi and most of the offshore oil industry. Not many oil platforms will have to shut down for this first hurricane of the season.

There is no such sigh of relief for the salt marshes in the Mississippi delta, however. The hurricane will pass by a short distance away, and waves from the hurricane will easily splash over the booms that, on calm days, have been keeping the oil spill out of the marshes. Three or four days of choppy surf could, depending on the currents, wash tons of oil into marsh areas, potentially destroying some of them. At the same time, the hurricane track is to the left of the oil spill area, which will cause minor coastal flooding. Ordinarily this kind of flooding would not bother anyone, but in the presence of an oil spill and waves, it could carry oil miles from the outer shorelines into the swamps.

These effects are speculation at this point — the significant waves haven’t arrived in the spill area yet — but these are people who know what they’re talking about:

Tommy Stevenson, Tuscaloosanews.com: Tropical Storm Alex’s path is NOT good news

Reuters: Hurricane Alex to hamper BP's oil spill containment

The Weather Channel: Hurricane Update

Supreme Court Strikes Down Secret Accounting Board

Sometimes it helps to have a corporate lawyer on the Supreme Court. The ruling today strikes down a sort of secret society created by the Sarbanes-Oxley law to govern corporate accounting. The Public Company Accounting Oversight Board was intended to be slightly beyond the control of the government, but it wields the power of the government. It has the authority to conduct surprise inspections of essentially any C.P.A. and assess fines. Congress envisioned it as almost a private organization of the accounting business, with the idea that the industry could police itself. That is almost never a successful formula. Usually what happens is that the more powerful providers or organizations in an industry use such a governing body to squeeze out smaller companies and potential new competitors. This is a particularly egregious situation when the whole purpose of a board is to protect the public from the unscrupulous side of the accounting business. In case anyone has forgotten, the Sarbanes-Oxley law was passed in the first place largely in response to misconduct at what was then one of the largest accounting firms.

The Supreme Court has corrected this, partially anyway, by placing the Public Company Accounting Oversight Board more firmly under government control. My hope is that, as a result of this change, the board will pay more attention to protecting the public, and will not be so easily used as a tool of the accounting establishment to protect itself from competition.

Recruiting When Workers Have Choices

The recession has seen a striking decline in the field of recruiting as the glut of workers has made employers overconfident. With so many workers to choose from, many employers seem to think that recruiting consists mainly of going through a stack of resumes and throwing away 97 percent of them, a tedious task that can be assigned to a secretary or intern. Recruiting companies have largely been reduced to finding workers already employed in a field and promising them higher salaries. These strategies may work now, with the job market hopelessly out of balance, but they are not likely to measure up two years from now when some movement returns to the job market.

I had an occasion to talk with one employer this week, who complained of getting “just” a few dozen applications for two minimum-wage openings that had been posted only for three weeks, and only on the employer’s own web site. If this is a measure of employers’ overconfidence, then they are not ready for what is likely to hit them as the economy recovers.

Workers have more options outside of employment than ever, and the tight job market is forcing many workers to explore their options. When you consider that less than 3 out of 4 workers are fully employed, this will be creating the equivalent of a generation of workers who are not so easy to employ. These are not the subsistence farmers and dropouts of 1969 (though there is some of that going on now too), but skilled workers with real business models. Some will be so successful that they won’t consider working for another company; others, though, will be happy to consider offers, but won’t be as eager as before to jump through hoops for a chance at a job interview. To employers that have always taken a passive or even a hostile approach to recruiting, the latter group is just as inaccessible as the former.

Some of the big-box retailers know what is coming and are already experimenting with ways to automate a small part of their work so they can get by with a smaller or less reliable work force. But many employers, particularly in the hospitality sector, will be staggered by the coming sequence of events, as their best employees go away just as their customers are starting to come back. Any employer, though, still has time to adjust its approach to recruiting and employee relations, taking a more active and more positive approach to workers.

This Week in Bank Failures

The final form of the financial system reform measure in Congress isn’t known, but large bank stocks rallied today on the belief that the reform measure will allow banks to continue to bet against their customers with up to 3 percent of their assets in securities markets and hedge funds. The 3 percent limit would appear to affect only Goldman Sachs, which presumably would be forced to spin off its banking business. The ability to place bets in securities markets is important to large banks, which have collectively lost money from banking operations over the past year, but have made a profit in the stock market.

The banking bust in southwest Florida continues, with Peninsula Bank failing tonight, and perhaps four more banks in the area that are considered financially empty at this point. Peninsula Bank was based in Englewood, Florida, and had six locations along the southwest coast of Florida, though it also had seven locations along the state’s southeast coast. It had $580 million in deposits.

Premier American Bank is taking over the deposits and purchasing the assets.

Banks also failed tonight in Georgia and New Mexico. In Georgia, Savannah-based First National Bank failed. It had four locations and $232 million in deposits. The Savannah Bank is taking over the deposits and purchasing the assets. It is paying a token premium for the deposits.

In New Mexico, the failed bank was High Desert State Bank, with its two locations in Albuquerque and Rio Rancho. It had $81 million in deposits and a similar amount in assets. The successor is First American Bank.