ERICOPOLY

Well, a lot of the time there will be an 85 kWh battery pack parked in my garage. I wish Tesla had designed it for this potential use. I could run my home on it for a couple of days on one charge! And recharging it for only 9 cents per kWh. Instead of getting hosed at 47 cents per kWh during the hours of 10am and 6pm. That would help defray it's cost over time.

Have you looked at SolarCity? Of course, it's probably better for you to buy the system outright since you have the capital... But maybe they offer something that could interest you. I'm also wondering if I can get a battery backup system for the house... and then charge it between 12am and 6am for the rate of 9 cents per kWh. Then during the day I can draw that electricity back out of the battery during the hours (10am and 6pm) when I'm getting charged 47 cents per kWh. That's a 5 bagger every day! Solar City sells residential batteries made by Tesla.

I suppose buying AAA short term tax-free muni bonds with margin is a way of earning tax free income while writing off the margin interest.

I don't want to buy the put. I want to write it.

My local utility has a special rate plan for electric vehicle owners. 9 cents per kWh between 12 am and 6 am, and a whopping 47 cents between 10 am and 6pm. Costco sells a 5,000 watt solar system with racking and inverter for $13,000. Now if you assume the Federal tax credit will cover installation. Then the repayment period on the system will be less than 2 years. Beyond that, tax free gravy. So I'm scheduling the pool pump to start at midnight. Hilarious! Forgot to mention -- we don't need air conditioning this close to the ocean.

Well, that would be float gathered at an underwriting loss, right? But what if year after year you have gathered it at an underwriting profit? Would you compare that to equity? giofranchi Not necessarily. You can book a 90 CR and then have a cat loss and revise to a 99 CR. It was profitable underwriting, but the readjustment probably hurt you. Well, jay, mine was a rhetorical question… of course you won’t compare that to equity… because it is not equity… exactly like deposits are not equity… even sticky deposits… in a deflationary scare or financial panic withdrawals will always hurt banks… the same way unexpected cat losses would hurt insurance companies… that’s why you should always be careful not to rely too much on what you don’t own, any form it takes! giofranchi If people are withdrawing, then they are not sticky. The best deposit franchises have increased their deposits during this deflationary time. Jay, all I am saying is that sticky deposits are not equity... Equity = 1 Sticky deposits = 9 Debt = 0 Total assets = 10 If you do something stupid and your assets decrease 10% in value, you are bankrupt no matter how sticky deposits are. Don't you agree? giofranchi Disagree. Banks were dead on a MTM basis. Deposits helped recap them. I thought depositors and bond holders weren't touched... Instead, I thought tax payers money had recapitalized banks... giofranchi Well, if you really want to get into end-of-banks scenarios, then it would have been interesting to see how the FFH CDS portfolio would have faired if the big banks weren't saved. At the same time, AIG would have failed and insurers would have gone down in a reinsurance daisy chain. Fairfax had a lot of reinsurance recoverables at the time.

Well, that would be float gathered at an underwriting loss, right? But what if year after year you have gathered it at an underwriting profit? Would you compare that to equity? giofranchi Not necessarily. You can book a 90 CR and then have a cat loss and revise to a 99 CR. It was profitable underwriting, but the readjustment probably hurt you. Well, jay, mine was a rhetorical question… of course you won’t compare that to equity… because it is not equity… exactly like deposits are not equity… even sticky deposits… in a deflationary scare or financial panic withdrawals will always hurt banks… the same way unexpected cat losses would hurt insurance companies… that’s why you should always be careful not to rely too much on what you don’t own, any form it takes! giofranchi Additionally, A very large bank doesn't have a large percentage of it's risky assets tied to a small geographic area. I read that Australia requires small banks to carry more capital than large banks for this common-sense reason.

Right, that was my thought process above, but then we started talking about the opposite, where volatility pricing increased when a market correction was coming--that's where I got confused. I think people who sense a market crash coming due to some potential macro risk will start wanting to protect what they have or go short (and hedge he short with calls). But there must be a period in between, and perhaps that's where we are.

Sure, as long as you call it "equity" when Wells Fargo takes in a deposit and loans it out -- because year after year they make a profit from that. I don't think Tyler Durden would call the loan portfolio "equity". I don't know how Tyler Durden would call what... and I don't care! I call what I own EQUITY, and what I owe LIABILITIES. Until now it has worked well enough! ;D giofranchi Fair enough. I was misled by your spending time on what Tyler Durden says.

Sure, as long as you call it "equity" when Wells Fargo takes in a deposit and loans it out -- because year after year they make a profit from that. I don't think Tyler Durden would call the loan portfolio "equity".

Well, that would be float gathered at an underwriting loss, right? giofranchi That is how it works out, yes. Don't you remember in 2005 when Montpelier Re (MRH) lost 70% of shareholder equity in one quarter? I mean, holy shit! And they were underwriting at a profit for the years leading up to that event.

How about this... you are a writer of put options. You could instead just buy the stock. So if the stock has huge upside, why would you write the put option without a big premium? The cheaper the market (the more upside), it makes sense that put options should also be very expensive at the same time. And when the market is peaking, it makes sense that at-the-money put options should be getting cheaper.

Some of those assets are cash. How can I be certain of it's quality? Ditto for govt bonds... Then there are mortgages secured by real estate... etc... So while it makes good copy to say 10x exposure to equity, it's meaningless unless you adjust for the low-risk and non-risk assets. This also ignores the best part of being a bank. The deposits! If you have sticky deposits, its almost like having equity. As it Eric points out, if cash, treasuries, and agencies default, I probably have bigger problems than my investment in a bank. The biggest risk with banks is when securities that are rated AAA have the credit quality of less than B and you have a lot of ST funding financing them. That's when the business model breaks down. Deposits also don't cut you the way insurance float can cut you. Taking an insurer and saying it's 3x levered is sort of misleading -- major cat losses can hurt just like investments can. In fact, aren't they investments? So you bring in a dollar of premiums and invest it two ways: 1) a bond (investment) 2) a policy (a second liability) that costs you money when the wind blows, the earth shakes, etc... But it's only counted once. Second point to make... once again regarding this 10x leverage of the bank. There is a loan loss reserve that isn't counted as part of that equity -- or were you counting it?

Sunrider, yours is a very good explanation! Thank you very much! :) But, please, tell me: when you have total assets that are $2 trillion and 10 times equity, how could you really be sure about your judgment of their quality? And you must be sure practically about all of them! Because they are so much larger than your capital. In the case you are not sure, you are left only with the assumption (hope?) they won’t default. Do I understand this correctly? I ask, because I am well aware it is not my game! giofranchi Some of those assets are cash. How can I be certain of it's quality? Ditto for govt bonds... Then there are mortgages secured by real estate... etc... So while it makes good copy to say 10x exposure to equity, it's meaningless unless you adjust for the low-risk and non-risk assets.

My understanding is that cost of leverage (option premium) rises when people think a correction is coming. That seems like an odd reaction--if the market thought the prices would go down, then why would you pay more for upside leverage? It's not called a "volatility" premium for nothing :) Put/call parity -- the volatility premium is the same for at-the-money option. Whether it be put or call. In practice the quote you see would differ slightly depending on expectations for dividends and interest rates (given that a call gets paid no dividend and you are synthetically borrowing money). And on the bullish side, the fact that the stock went up $2.70 since we started this thread makes further upside volatility less likely (given that so much recovery is baked in). Thus, less upside volatility premium as well. I think when a stock is severely depressed and everybody knows it will rally big if X,Y,Z get cleared up, then it has a big volatility premium that will drop as the stock goes up (after X,Y,Z are cleared up).

My understanding is that cost of leverage (option premium) rises when people think a correction is coming.

My VIN # indicates I'm getting the 14,606th out of production. Reportedly they are into the 15,000s now. Not bad for another DeLorean.

It's mostly hedged now.

So now that the stock is above $14.19, the cost of a 2015 $12 strike BAC put has fallen to an "ask" of $1.00. That's 18 months for $1.00. Roughly 6% annualized.

That's silly. They don't have higher taxes for fuel efficient cars. They should be encouraging Hummers and big V8 muscle cars in order to boost highway tax revenue.

Nice! Those black ones look great but I'm too lazy to keep them looking clean.

People tend to overestimate the range that they need. Unless you are one of those rare people who constantly drive very far without stopping much, 300 miles is already more than it might seem if you compare directly to a gas-car; by that I mean that electric cars are usually fully charged when you leave the house in the morning, so you always have a "full tank", while gas cars are only charged every X number of days, so you leave the house on many days with probably a lot less than 300 miles of potential range yet that's not a problem. The extra range only becomes necessary for a road trip. Given the fast swap of batteries in the Model S, then perhaps you only need to have the bigger battery in your car when you are planning a long drive. But the extra acceleration would be mindboggling. The extra acceleration comes from a bigger battery (that's why mine goes to 60 in 4.2 seconds). So when a 400 mile batter, or 500 mile, or 700 mile... etc... when those batteries are available they only need to let us "rent" them at a Tesla battery swap station. The swap takes only a couple of minutes (it's done robotically). So you have those available at the supercharger stations. And check out the full list of stations planned for 2015. It's impressive: http://www.teslamotors.com/supercharger Move the slider control to 2015 on that linked page.

What color did you pick Eric? And the interior? Very nice car! Cheers! It is silver metallic paint with tan interior. All Glass panoramic roof. I chose the fastest one (performance edition) and added the "performance plus" package. As for the rest of the options, I checked all of the boxes ;D Nice! So on the top of the line "performance plus" package, how many miles will you get before charging? About 275-300 miles? Cheers! It won't be 300 miles. That's for 55 miles per hour ;) They have an app for estimating mileage with different speeds and road conditions: http://www.teslamotors.com/goelectric#range Just scroll down on that linked page until you see the white car with the turning wheels. You can adjust the settings and it will simulate the range. 245 mile range on the highway at 65 MPH 352 mile range on the highway at 45 MPH 292 mile range in the city If they could get that to 400 miles at 65MPH, that would be something. I think you would start to see a lot of luxury car owners switching to a Tesla, because price-wise it is already competitive with high-end Mercedes and BMW's. Enjoy your ride! Your license plate should say "FFH BAC"! Cheers! I wonder if it were LFYAH anyone would get the reference?

What color did you pick Eric? And the interior? Very nice car! Cheers! It is silver metallic paint with tan interior. All Glass panoramic roof. I chose the fastest one (performance edition) and added the "performance plus" package. As for the rest of the options, I checked all of the boxes ;D Nice! So on the top of the line "performance plus" package, how many miles will you get before charging? About 275-300 miles? Cheers! It won't be 300 miles. That's for 55 miles per hour ;) They have an app for estimating mileage with different speeds and road conditions: http://www.teslamotors.com/goelectric#range Just scroll down on that linked page until you see the white car with the turning wheels. You can adjust the settings and it will simulate the range. 245 mile range on the highway at 65 MPH 352 mile range on the highway at 45 MPH 292 mile range in the city

Yes, I was taking issue with the meaning of the word "subsidy". As in, somehow everyone else is subsidizing me. I already own 3 vehicles. This is purely a luxury toy. If I buy this car, American's get more jobs. Tax receipts go up because my sales tax exceeded the subsidy. If I don't buy this car, fewer jobs for Americans and less tax revenue. Where is the subsidy? Normally, given that I have paid more absolute tax dollars the past few years than the typical American, I must be subsidizing them. Only they don't call that a subsidy :-X