Baltic Dry Index. 1785 +06 Brent Crude 61.35 Spot Gold 1503
Never ending Brexit now October 31,
maybe not. 5 days away?
Trump’s Nuclear China Tariffs
Now In Effect.
The USA v EU trade war started October
18.
A unicorn is a
privately held startup company valued at
over $1 billion.[1] The term was coined in 2013 by
venture capitalist Aileen Lee, choosing
the mythical animal to represent the statistical rarity of such successful
ventures.[2][3][4][5] Decacorn is a word used for
those companies over $10 billion,[6] while hectocorn is used for
such a company valued over $100 billion. According to TechCrunch, there were 279 unicorns as of
March 2018.[7] The largest unicorns included Ant Financial, DiDi,
Airbnb, Stripe and Palantir Technologies.[8] Lyft
is the most recent decacorn that turned into a public company on March 29,
2019.
While we await the geniuses at the Fed’s meeting next week, the latest from the EU on Brexit next week, and the
latest next week on the USA v China trade deal part one, this weekend we focus
on the bubble bursting in Unicorns (and possibly SoftBank Group.)
(For a real genius scroll down to the music
section at the bottom. Shame the Fedster’s can’t match his talent.)
SoftBank is trying to catch a falling
sword, but it may just be the start of many.
WeWork hype was never anything more than 'unicorn feces,' says business prof
The real-estate startup dazzled investors by painting itself as a technology company, says Scott Galloway
CBC Radio ·
The initial hype over real-estate startup WeWork can be
blamed on a "consensual hallucination between investors and
founders," says business professor Scott Galloway.The company that rents communal office space has been scrambling for cash since its attempt to enter the stock market floundered last month, a stunning fall from grace for a company that has until recently been considered one of the most highly valued startups in the U.S.
Now Japanese tech giant SoftBank is sweeping in to rescue the company and pushing aside its charismatic co-founder Adam Neumann, who could reportedly walk away with nearly $1.7 billion US.
"SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution," SoftBank's founder Masayoshi Son said in a statement.
Galloway, a marketing professor at New York University's Leonard N. Stern School of Business, first rang alarm bells about WeWork's unsustainable business model in 2017, and wrote a scathing takedown of the company on his personal website in August.
Here is part of his conversation with As It Happens guest host Helen Mann.
----At one time, WeWork was valued at $47 billion dollars. What made the company so attractive to investors?
There's sort
of what could be best described as a certain level of consensual hallucination
between investors and founders. They're chasing sort of this halcyon effect of
trying to find the next Google or Facebook.
But
realistically, even though SoftBank may have valued internally WeWork at $47
billion ... arguably, the company was really never worth that.
Regardless
of what the actual value should have been, what was it that that drove those
numbers? You know, it looks like it was a real-estate company. It would
lease, I think, office space, maybe buy some up, rent it out to others,
sometimes tech entrepreneurs. It envisioned itself as something else. It called
itself "the largest physical social network" in the world. But I'm
wondering how you get the value from that?
In the U.S.,
there's a kind of an algorithm of hallucinogenic value where profits have been
replaced by technology, or a technology overlay, and growth.
So this is a
company growing very fast. It was growing 70, 80 per cent a year. But it was
also scaling its losses just as fast.
Then they
used the word "technology" 123 times in their S-1 [the form companies
file to U.S. Securities and Exchange Commission when going public], trying
to position themselves as, in fact, a technology company.
So as long
as the markets are willing to buy that story, companies will continue to try
and position themselves as technology companies and replace profits with
top-line growth.
But I think
the markets have finally said this doesn't make any sense, and the music has
stopped and there's obviously too few chairs here. So this might be coming to
an end.
Was it ever
a technology company?
No. I mean,
the closest they have to technology was they had an app for reserving
conference rooms.
Did it ever
actually own any of the workspaces?
No. As a matter
of fact, one of the reasons this company's probably worth less than zero is
that they have $42 billion in long-term lease commitments over the next 15
years. And they leased other people's office space.
As a matter
of fact, that $47-billion number meant that the one floor they leased
in, say, a 10-storey building was being valued more than the entire
building they were leasing one floor in. So this never made any sense.
----You started to poke holes in the company back in 2017. What was it about WeWork that made you skeptical at that time?
I brought a
core competence to the situation called math. And I just saw a company that for
every $1 in revenue it was taking, it was spending $2.
I don't
claim to have any special skill here other than basic arithmetic. This company
never made any sense.
It kind of
buttresses the notion that a lot of these unicorn companies are a conspiracy
between their founders and their IPCs, trying to pump the company up with
corporate communications executives, a very charismatic CEO, an incredibly
compelling story and then foist, quite frankly, what I'll refer to as their
unicorn feces on unwitting public market investors.
More
‘It’s Definitely Pretty Empty’: Why Saving WeWork Will Be Hard
As Mr. Gunningham posed for a ribbon
cutting with the building’s owners and a local city councilman, WeWork’s
expansive offices loomed over them — an embodiment of how the company
overextended itself and now must try to make money after nearly burying itself
in losses.
WeWork’s 220,000 square feet of space at Dock 72, about a third of the
building, is far from full. The common area, offering spectacular views of
Manhattan, was bustling on the day of the ribbon cutting.
But it was sparsely
used in the days before and after. Some firms are moving in, but most of the
private offices that WeWork aims to rent out to businesses were vacant on
Thursday. WeWork said the space was over 30 percent occupied, roughly the
industry standard for openings.
“It’s definitely pretty empty,” said
Jurrien Swarts, who moved his start-up, Stojo, which makes collapsible cups,
into Dock 72 from another WeWork space in Brooklyn.
Including Dock 72, WeWork is
expected to add about 10 million square feet of new office space to its bulging
property portfolio in the United States and Britain this year alone. These
locations, often built out at great cost, highlight the knife-edge economics
confronting executives who are trying to save the company, which this week
received a last-minute lifeline from SoftBank after being forced to scrap an
initial public offering.
----SoftBank now wants WeWork to slow its growth, focus on its core business — leasing office space, refurbishing it and renting it to “members” — and devote its energy to major markets like New York and San Francisco.
At a meeting
with employees on Wednesday in Manhattan, Mr. Claure said he would focus on
profits over growth. He also said there would be layoffs, but didn’t say how
many, according to four people with knowledge of the event. One WeWork employee
leaving the office said she was on her way to a job interview. Several senior
executives besides Mr. Neumann have already left the company or have said they
were on their way out.
----But stabilizing WeWork will not be simple.
Documents for the company’s initial
public offering showed that WeWork was racking up huge losses and burning
through billions of dollars a year.
One big reason for those losses is
that WeWork is on track to add 9.9 million square feet of space this year in
the United States and Britain, according to data from CoStar, which specializes
in commercial real estate information. That is more than three times the space
in Apple’s spaceship-shaped headquarters, and it
is well more than the 6.3 million square feet WeWork added last year. In New
York City, where WeWork is the largest private tenant, it has committed to take
on an additional 2.6 million square feet in 2019, according to CoStar’s data.
Elsewhere, occupancy at WeWork’s
prime spaces, including at several locations in Boston and San Francisco,
appears to be robust.
----But it is not clear whether even WeWork’s busiest locations are solidly profitable.
In its
securities filings, WeWork did not disclose the financial performance of its
older locations, which would have had the chance to fill up and, in theory,
prove themselves. International Workplace Group, one of WeWork’s biggest rivals
and a publicly traded company, does provide such details.
Making money
in the “shared space” business involves ruthless cost management, and a
measured approach to growth, industry executives said. WeWork’s critics say it
has had neither. While the company creates attractive spaces, these people
said, it has spent too much doing so — and will struggle to achieve average
industry profit margins.
Mark Dixon,
chief executive of International Workplace Group, likens WeWork’s approach to
running a hotel where room service is free. “You might have a full hotel, but
you just cannot make any money,” he said.
If some
locations are hopelessly unprofitable, WeWork could try to leave them before
the end of the lease. But if the company does that too often, landlords will
grow skittish about doing business with it. In addition, building owners have
financial safeguards against WeWork’s walking away, like guarantees from the
company, letters of credit and security deposits. At the end of June, such
protections totaled $6 billion, according to WeWork’s securities filings.
More
Adding
to SoftBank’s bailout crisis, now WeWork is about to get some Chinese
competition. But will there be any buyers for the failed business model?
Pouring
good money after bad comes to mind. Could Unicorn ranching in cryptocurrencies
be the next Unicorn to go poof?
Exclusive: China's WeWork equivalent Ucommune files for U.S. IPO - sources
October 25, 2019 / 7:45 AM
HONG KONG (Reuters) - China’s biggest
shared workspace provider Ucommune has filed a confidential prospectus with the
U.S. securities regulator as it seeks an initial public offering (IPO) before
the end of the year, two people with direct knowledge of the matter said.
Beijing-based Ucommune, which was valued at $2.6 billion about a year ago, has appointed Citigroup (C.N) and Credit Suisse (CSGN.S) to work on a listing, while Bank of America (BAC.N) has a minor role on the deal, the sources said.
A prospectus was lodged with the U.S. Securities and Exchange Commission (SEC) in late September, they said, and the company has held preliminary meetings to sound out investors before the formal public marketing process begins.
A decision
to go ahead with the IPO will depend on the feedback provided by potential
investors, the sources said.
A deal
before the end of the year is still the company’s target, they said.
More
Rob Arnott: Faang is out, Fanmag is in — and it is a bubble
Research Affiliates partner and chairman argues that Microsoft belongs in a category with fast-growing tech stocks
By David
Ricketts and Dave Morris
October 21, 2019 1:01 am GMT
Facebook, Apple, Netflix, Microsoft, Amazon and Alphabet (the parent company of Google) have a combined market capitalisation of about $4.2tn, said Arnott.
“Will these stocks produce such impressive growth that they will justify their current market cap, or are these implausible growth expectations? We do not have a crystal ball, of course, but we would recommend not betting on the momentum continuing,” Arnott told Financial News exclusively as part of the 2019 Money Masters investing special.
Arnott, who is known as the “godfather of smart-beta” for having pioneered the approach, established Research Affiliates in 2002. Today, it manages $184bn in assets.
The market cap of what Arnott calls the Fanmag stocks (as opposed to Faang, the more common grouping of US tech darlings which omits including Microsoft) is “roughly 15% of the total $30tn market cap for all US stocks”, Arnott said.
“This places these six companies above the market cap of all but two of 61 countries in the Morningstar Global Markets index.
“The US financials sector is larger, at $5.2tn, but US tech, excluding these stocks, is smaller.
“US healthcare is smaller than the Fanmags. That is startling.”
Using this
definition, Arnott explained, the dramatic recovery in bitcoin in 2019 also
suggests it remains in a bubble.
“If bitcoin truly
becomes an accepted currency, no valuation model for it exists, other than what
the public chooses to believe it is worth. It bears mention that this is much
the same as for the dollar or any other fiat currency. Predicting near-term
price direction is a fool’s errand, but any expectation of a higher price rests
solely on the hope of selling to a future buyer at a higher price.
"If you
are a buyer, what is going to be the signal that will lead you to sell before
it is too late? What is your exit strategy?”
The five Faang stocks declined from their highs, leading the market’s sharp sell-off, in late 2018, adding weight to calls by a number of commentators including analysts at Canaccord Genuity that the grouping constituted a bubble.
Arnott described Research Affiliates’ approach to spotting a bubble in real time as focusing on two key factors.
“First, if you are using a valuation model, you would have to use implausible growth to justify the model. Second, marginal buyers do not care about valuation. They care about a story.”
Finally, about that 50 billion of
Chinese US agriculture purchases. Why would they do that? Doing any kind of
deal with President Trump is risky in itself, given his unpredictability and
willingness to walk out of international deals and treaties, so why would China
be willing to buy more than twice the agricultural goods that they’ve ever
bought before?
Did President Trump misstate the “deal?”
Suppose a deal is done and Trump takes off all the tariffs? Will that be good or
bad for the global economies? It ought to be good, but given the sudden
disruption and reversal of relative trade advantages and disadvantages, I
suspect that the immediate effect will turn out bad. It might not be what global stock markets
expect.
China says willing to increase ags, industrial goods imports from Brazil
October 25, 2019 / 11:42 AM
BEIJING (Reuters) - China is willing to
increase its imports of agricultural and industrial goods from Brazil in order
to enhance bilateral trade, Chinese Vice Premier Hu Chunhua said on Friday.
Hu, at a
seminar in Beijing, also said the two countries can deepen cooperation in areas
such as infrastructure, according to a pool report.
China is
Brazil’s biggest trading partner and largest source of foreign investment. Last
year, bilateral trade rose to a record $100 billion.
Brazilian
President Jair Bolsonaro, who was also at the seminar, is in China to mark the
45th anniversary of the establishment of diplomatic ties between the countries.
Brazil and
China are part of BRICS, a grouping of major emerging economies that also
includes Russia, India and South Africa. China has said BRICS countries must
strengthen their unity, increase cooperation and uphold multilateralism.
“The world
is facing serious challenges from unilateralism and protectionism, putting
pressure on major economies as uncertainty and instability are on the rise,” Hu
said.
“China and
Brazil, as two major economies, should increase communication and cooperation
to face these challenges and realize shared development.”
Brazil is
hopeful China will authorize more local meat exporters before Chinese President
Xi Jinping visits Brazil next month, as the South American country seeks to
position itself as a major food exporter to the world’s most populous nation.
More
The Unicorn looked
dreamily at Alice, and said, "Talk, child."
Alice could not help her lips curling up into a smile as she began: "Do you know, I always thought Unicorns were fabulous monsters, too! I never saw one alive before!"
"Well, now that we have seen each other," said the Unicorn, "if you'll believe in me, I'll believe in you. Is that a bargain?”
Alice could not help her lips curling up into a smile as she began: "Do you know, I always thought Unicorns were fabulous monsters, too! I never saw one alive before!"
"Well, now that we have seen each other," said the Unicorn, "if you'll believe in me, I'll believe in you. Is that a bargain?”
Alice's Adventures in
Wonderland & Through the Looking-Glass
This weekend’s musical diversion. A 10 year old prodigy plays Albinoni from
memory not sheets. Like watching Mozart
250 years ago.
Tomaso Albinoni Concerto for Oboe
D-minor Op.9 No.
https://www.youtube.com/watch?v=JJBUai5kvkU
https://www.youtube.com/watch?v=JJBUai5kvkU
The monthly Coppock Indicators finished September
DJIA: 26,917
+57 Up. NASDAQ: 7,999 +62 Up. SP500: 2,977 +61 Up.
Another inconclusive month, but all three moved up weakly. I
would not rely on nor take such a weak buy signal.
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