David Stockman, Former Director of the Office of Management and Budget

The trouble with the money-printing madness in the Eccles Building is that it generates huge deformations, misallocations, and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dot-com bust and $15 trillion during the 2008-2009 financial crisis.

Yes, the Fed has managed to reflate this cheap money bubble for the third time now, but the certainty that it will splatter once again is not the issue at hand. What gets lost in the serial bubble-making process of modern central banking is that vast real resources—labor, capital, and materials—are misallocated owing to mispricing of stock, bonds, and real estate during the bubble inflation phase.

During the bust phase, of course, these excesses are written-down on financial statements and often liquidated entirely on an operational basis. But that's just the problem. These bust-phase corrections amount to deadweight losses to the economy—a permanent setback to growth and societal prosperity.

The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla—a crony capitalist con job that has long been insolvent and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed's Wall Street casino.

Not surprisingly, the speculative mania on Wall Street has reached such absurd lengths that Tesla is being heralded and valued as the second coming of Apple and its circus barker CEO, Elon Musk, as the next Henry Ford. Indeed, so raptured were the day traders and gamblers that in the short span of 33 months between early 2012 and September 2014, they ramped up Tesla's market cap from $2.5 billion to a peak of $35 billion.

That's a 14x gain in virtually no time—and it's not due to the invention of a revolutionary new product like the iPad. Instead, we're talking about 4,600 pounds of sheet metal, plastic, rubber, and glass equipped with an electric battery power pack that has been around for decades and which is not remotely economic without deep government subsidies.

Beyond that, the various Tesla models currently on the market carry price tags of $75k to more than $100k. So they are essentially vanity toys for the wealthy—a form of conspicuous consumption for the "all things green" crowd.

TSLA data by YCharts

But notwithstanding all the hype on Wall Street, there was nothing remotely evident in its financials that justified Tesla's $35 billion peak market cap. Net sales for the LTM period ended in September amounted to $2.9 billion, meaning that speculators were putting a Silicon Valley-style multiple of 12x sales on a 100-year-old industrial product, and one sold by a fly-by-night company distinguished from its auto company peers, which trade at 0.5x sales, only by marketing hype and a high-cost power plant that could be made by any of two dozen global car companies if there was actually a mass market demand for it.

Needless to say, Tesla's meager LTM sales were not accompanied by any sign of profits or positive cash flow. September's LTM net income clocked in at negative $200 million, and operating cash flow of $150 million was dwarfed by capex of $700 million.

Unless you are imbibing in the hallucination-inducing Kool-Aid dispensed by Goldman Sachs, which took this red-ink machine public in 2009 and has milked it via underwritings, advisories, and early-stage investments for billions, Tesla's valuation was patently absurd. Yet the gamblers piled in based on the utterly improbable assumption that oil would remain at $115 per barrel forever; that a mass market for electric battery autos would soon develop; and that none of the powerhouse marketing and engineering companies like BMW, Toyota, or even Ford would contest Tesla for market share at standard industry profit margins.

The truth is, there is massive excess capacity in the global auto industry owing to government subsidies and bailouts and to union protectionism that keep uncompetitive capacity alive; and that chronic condition is now especially pronounced due to the wildly soaring growth of unused production capacity in China. This means that the global economy is literally saturated with expert resources for auto engineering, design, assembly, machining, and component supply.

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