Is This the Beginning of the End for Tesla?

Is this the beginning of the end for Tesla?... The electric-car maker just fired hundreds of employees... Defense stocks hit record highs... Why Doc Eifrig and his team believe this trend will continue... Last chance: Reserve your spot for our first-ever bitcoin event...

Is this the beginning of the end for Tesla?

Regular Digest readers know we're no fans of the electric-car maker and its "visionary" CEO Elon Musk. We've long believed it's only a matter of time before the company's terrible business model – and Musk's questionable ethics – catch up with it.

We'll admit it... Tesla has kept the charade going far longer than we ever imagined it could.

Despite missing practically every manufacturing deadline and sales target it has ever set... losing money on every car it sells... and sending nearly $10 billion to "money heaven" over the past five years... Tesla remains a market darling. And Musk remains beloved by investors, the media, and the government alike.

But reality may finally be intruding...

Earlier this month, we noted that the company is having serious trouble building its new, lower-priced Model 3 sedan, even by its own dismal standards.

Last week, Tesla announced yet another safety recall, this time of 11,000 units of its high-end Model X SUV.

And on Friday, reports surfaced that the company had suddenly fired hundreds of employees. As news service Reuters reported...

Luxury electric vehicle maker Tesla fired about 400 employees this week, including associates, team leaders and supervisors, a former employee told Reuters on Friday.

The dismissals were a result of a company-wide annual review, Tesla said in an emailed statement, without confirming the number of employees leaving the company...

The Palo Alto, California-based company said earlier in the month that "production bottlenecks" had left Tesla behind its planned ramp-up for the new Model 3 mass-market sedan.

Tesla suggested the cuts were related to performance...

But new reports suggest there may be a different reason behind the move. As financial-news network CNBC noted this morning (emphasis added)...

Tesla is trying to disguise layoffs by calling the widespread terminations performance related, allege several current and former employees...

Most of the people let go from Tesla so far have been from its motors business, said people familiar with the matter. They were not from other initiatives like Tesla Powerwall, which is helping restore electricity to the residents of Puerto Rico now...

"Seems like performance has nothing to do with it," one Tesla employee told CNBC under the condition of anonymity. "Those terminated were generally the highest paid in their position," this person said...

That assessment was echoed by several others, including three employees fired from Tesla during this latest wave. Tesla rates employees on a scale from 1 to 5. Two laid-off employees had achieved scores at or above 4 in past performance reviews with their managers, they said.

Tesla appears to be desperately slashing costs...

... Despite raising another $2 billion just two months ago. Tesla investors should be asking themselves why this is happening. Perhaps the company's financial health is even weaker than believed?

In the meantime, we wouldn't count on Musk hitting his production targets this quarter, either.

Defense stocks are skyrocketing amid rising tensions with North Korea...

Kim Jong Un claims President Donald Trump has "lit the wick of war" with his rhetoric. Trump has referred to the North Korean leader as "little rocket man" after he conducted 15 missile tests so far this year. And just this week, North Korea's deputy U.N. ambassador warned that the situation has "reached the touch-and-go point and a nuclear war may break out any moment."

As of Monday's close, defense stocks are up nearly twice as much as the broad market year to date. And they show no signs of slowing. The iShares U.S. Aerospace & Defense Fund (ITA) – which holds a basket of defense stocks – recently hit a new all-time high. Shares are up more than 30% since the start of the year.

The rally in defense stocks first strengthened last November when Trump was elected president. That's partly because the Republican Party is seen as more military-friendly. But Trump compounded that optimism a few months later when he said he wanted to increase military spending by $54 billion.

Both sides of Congress, while still working out a budget, are indeed showing support for even more military spending. And numerous defense contractors are likely to benefit.

These companies should also benefit as other countries follow this trend, too. The U.S. leads the world in military spending by a massive margin. But now, more countries are ramping up spending as threats of war swell on the Korean Peninsula, the Middle East, and other regions.

U.S. allies South Korea and Japan are among those beefing up their militaries, especially after Trump recently said he would allow them to buy more "highly sophisticated" military equipment than expected.

Our colleague Dr. David 'Doc' Eifrig is incredibly bullish on this trend...

He has added three defense stocks to his Retirement Millionaire portfolio over the last two years. But war rhetoric aside, Doc and his team believe these companies are fantastic long-term investments today. Doc's senior analyst Matthew Weinschenk shared his latest thoughts on the sector in a private e-mail this week...

Yes, folks who fear escalating tensions between North Korea and Trump have started buying up defense stocks. That has turned sentiment in their favor, but we believe the fundamentals support a much longer and broader trend.

The Senate recently passed the National Defense Authorization Act worth $700 billion. That's up from $549 billion in previous spending and from the $603 billion that Trump requested.

This isn't partisan politics. The Senate's vote came in at 89-8 in favor. And our military desperately needs it. Obama reduced military spending, which was further hampered by budget sequestration. Our military readiness has been reduced to the lowest level in decades thanks to the penny-pinchers.

Doc first recommended aircraft manufacturer Boeing (BA) to his Retirement Millionaire subscribers back in August 2015. It's up 90% since then. He recommended a second defense stock – shipbuilder Huntington Ingalls Industries (HII) – back in January. Shares are already up 24%. And his latest defense-related recommendation, added to the portfolio in July, is already up 13%.

All three stocks are in a clear uptrend, recently hitting new record highs. But with the U.S. increasingly vulnerable to threats of war, Doc and his team believe the sector still has plenty of room to run. More from Matt...

This summer, an opinion piece by former vice president Dick Cheney in the Wall Street Journal pointed out, "Only three of 58 brigade combat teams [are] ready to 'fight tonight,'" and "fewer than half the Navy's aircraft can fly because so many are grounded for maintenance or because they lack spare parts."

This comes at a time when we face threats from real superpowers that we didn't need to face before. Russia and China are increasingly aggressive. Plus, we need to ramp up missile shield defenses, cybersecurity, and other threats we didn't face 10 years ago.

These stocks may be a little overheated right now, thanks to Kim Jong Un's attention. But over the next few years, we're sure to see more spending going to defense contractors – a highly concentrated industry with regular, government-guaranteed profit margins.

Do you have a 'war ready' portfolio?

Had you invested in some of the biggest defense contractors during the first year of President Ronald Reagan's tenure, you would have made a fortune over the next several years. These stocks soared hundreds of percent as military spending ramped up under rising Cold War tensions.

Doc believes a similar trend could now be underway... And many of these firms could absolutely soar once again.

You can get instant access to Doc's detailed research on this trend with a 100% risk-free subscription to Retirement Millionaire. Click here to learn more.

New 52-week highs (as of 10/16/17): AMETEK (AME), Baidu (BIDU), iShares MSCI BRIC Fund (BKF), Global X China Financials Fund (CHIX), WisdomTree Japan Hedged Equity Fund (DXJ), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), Emerging Markets Internet & Ecommerce Fund (EMQQ), iShares MSCI Japan Fund (EWJ), Facebook (FB), Alphabet (GOOGL), iPath Bloomberg Copper Subindex Total Return Fund (JJC), JPMorgan Chase (JPM), KraneShares CSI China Internet Fund (KWEB), iShares MSCI China Index Fund (MCHI), Monsanto (MON), Microsoft (MSFT), Nvidia (NVDA), NVR (NVR), iShares MSCI Global Metals & Mining Producers Fund (PICK), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), and Tencent (TCEHY).

In today's mailbag, a question about trailing stops... and more cryptocurrency skepticism. What's on your mind? Let us know at feedback@stansberryresearch.com.

"Gentlemen: Fortunately I have some very nice gains in several stocks (30% to 70%). I would like to hear your thinking/strategy on placing trailing stops to protect these unrealized gains. By looking at the stock price fluctuation, it seems that a 5% trailing stop might be appropriate. Your comments please. Thanks much." – Paid-up subscriber Jack Petry

Brill comment: Yes, if you've been with us for long, you know we generally recommend placing a trailing stop loss on every stock you buy. And our editors almost always provide detailed stop loss instructions with every recommendation they make. If the stocks in question are from a Stansberry Research publication, your best bet is to refer back to those instructions.

On the other hand, if you bought these stocks on your own, you have some choices. In general, the size of the stop you choose will depend on many factors, including your risk tolerance, position size, investment time frame, and the characteristics of that stock. Unfortunately, we're prohibited from providing individual advice, and we don't know enough about your situation to answer your question even if we could.

If you'd like more guidance in this area, we urge you to learn more about TradeStops, the fantastic portfolio-management software created by our friend Dr. Richard Smith. TradeStops uses Richard's proprietary measure of individual stock volatility – the volatility quotient, or "VQ" – to take all the guesswork out of choosing the best trailing stop loss for any position. You can learn more about TradeStops right here.

"Hi Justin... I am with Herman S. in his letter yesterday. Until Doc buys bitcoin related stocks in his newsletters or cryptocurrencies himself l am staying on the sideline. I can learn more about them, but until he gives many of us the 'green light' we will stay clear. Thank you for your efforts to help us learn." – Paid-up subscriber Paul P.

Brill comment: Thanks for the note, Paul. Frankly, we can't argue with that sentiment. As we've said several times, cryptocurrencies are incredibly speculative and volatile. You could lose every dollar you put into them.

So if can't afford to take any risks with your money – or if you're primarily interested in preserving the wealth you've already built – they're probably not right for you. And if you're the type of "investor" who can't help but bet the farm on that next great junior gold miner or promising biotech stock, we beg you to stay away.

But if you can afford to speculate, and you have the discipline to follow strict position-sizing limits, "cryptos" offer a once- or twice-in-a-generation opportunity to turn as little as a few hundred dollars into real, life-changing money.

And even if bitcoin or other cryptos never become true alternatives to fiat currencies, many experts believe this technology could dramatically transform industries like banking and finance. Regardless of whether you have any intention of buying cryptocurrencies, you owe it yourself to learn more.

Again, our first-ever educational cryptocurrency event kicks off tomorrow night, October 18, at 8 p.m. Eastern time. Click here to reserve your spot now.

"To me this whole cryptocurrency thing seems like the newest/latest incarnation of a Ponzi scheme. People are forking over one form of currency (real dollars) during the ICO for what they hope will be a digital currency that may appreciate in value.

"Who are these people or groups creating the cryptocurrencies out of thin air that are raking in the real dollars during the ICO? They seem to be the only real winners. Do they have an ongoing role in this or do they then walk away after the dust settles, or maybe hold a portion of the cryptocurrency in reserve in anticipation that it will appreciate and then release it later for a killing?

"I'm intrigued by the possibilities, but still too many questions for me to jump into this." – Paid-up subscriber Paul K.

Brill comment: You're right to be concerned... And the majority of these initial coin offerings ("ICOs") are worthless at best, and fraudulent at worst. We'll be covering this – including how you can distinguish cryptos with real potential from all the rest – and much more at tomorrow night's free cryptocurrency event.

Regards,

Justin Brill
Baltimore, Maryland
October 17, 2017