Ernest Hemingway replied to the question “How did you go bankrupt?” by responding “Two ways. Gradually, then suddenly.”
This quote is still referred to today, because of its intrinsic poignant clarity.
Today, far too many either don’t fully understand what’s taking place with the capital markets, or don’t want to. Either way the results will be the same, for the “suddenly” stage is now here. i.e., everything once believed in “disruptive tech” is now over. Done. Gone. Kaput. Do not pass “Go,” do not collect $200. Period.
The idea that a company, any company, could present itself to the investment world (i.e., public capital markets) lose money on every sale since its inception, ridicule the thought of using 1+1=2 math, present a business model that two-year-olds’ openly mock as “there isn’t a diaper around that could hold that much crap” was not just ludicrous, but borders on criminal. Yet, that’s exactly what has been going on for the last decade. But as I implied – that’s now over.
What I would like to find comical, but it’s both dangerous and instructive, is just how truly ingrained this entire notion of “genius” is either attributed, or personally held, by so many from this set. Even though (my conjecture, of course) most, if not all of this so-called “genius,” is a direct result of a complete breakdown of business principles fueled by central banks.
In other words: if the central banks didn’t pursue the greatest monetary experiment in the history of the world printing $Trillions upon $Trillions ex nihilo, where only a decade ago such lunacy was argued across the once great Ivy League campuses as “conspiracy theory nonsense.” Most, if not all of these “disruptions” would ever had seen the light of day other than some small R&D experiment. Let alone, survived to become multi$Billion market capped behemoths of today.
But that’s what the “suddenly” stage is all about, isn’t it? For we’re now in precisely that.
“Gradually” was that period of time that I’ve been commenting on (and been proved correct) when the Fed ended the original QE (quantitative easing) experiment at the end of 2014. As I opined back then and subsequently ever since, I made the case that the entirety of the IPO phenoms known as “unicorns” was over. And it has been.
Were there some that came to “market,” as they say, since that period? Of course. But as I said back then, the first to feel the real “cash burn” will be those that buy into the public offerings. And the more damage that occurs there – the more wobbly the entire space will become. Till suddenly – it’s the VC’s who are the ones to feel the same pain.
That moment is precisely and suddenly – now.
The accompanying sudden scramble to save face, assets, cash, dignity _________(fill in the blank) is evident everywhere. That is – if you do the looking, because as far as the mainstream business/financial press in concerned? (insert cricket sound here)
What you will hear, read, or watch as of late is another so-called ” genius billionaire” profiled to tell the American public that either “capitalism is dead,” “communism works,” or my personal favorite (snark) “communists aren’t really communists, it’s in name only.” See Bloomberg for more “insight” on that one.
If you think I’m off base on any of those prior claims, let me just add the following for your consideration and let you be the judge. Ready?
Ray Dalio, a person that created a multi-$billion dollar empire making himself ridiculously wealthy in the process via a business model (my opinion) of nothing more once stripped down to its bare essentials to be: a parasitical based algorithmic empire that does nothing more than feed itself by front-running central bank largess. And all he seems to want to do now is explain to any media outlet that’ll carry him is how “capitalism” isn’t working. Well isn’t that just “fresh.”
Another is Salesforce™ founder and CEO Marc Beinioff who wants to tell everyone that will either listen or not (i.e., those that see right through this charade) that “Capitalism as we know it is dead.” This he says from a stage in San Francisco where people need an app to avoid getting more “San Fran” on their shoes than in a Porta-Potty®.
Here’s a hint for Mr.Beinoff and others of this ilk:
No, capitalism as we should know it is making a comeback.
What we have been subjected to and experiencing that people of this ilk profess as “capitalism” – that – is now dead. Let’s just say we’re in the “wake” or “mourning” aspect of this funeral. And it could go on a bit longer than many of us would like.
But not to worry – just have ready those “crying towels” I said one should have invested in way back in 2015. Because – you’re gonna need’m. Hint: See WeWork™, Uber™, Snap™, Softbank Vision Fund™ for preliminary diagnosis for metastasize-ation.
I also hope others attending conferences for such “insight” didn’t leave that event with anything getting on their shoes, after all, that’s a direct result of your (the Silicon Valley aficionado set) brand of “capitalism” is it not?
Again, this is all happening directly in the back yard of Silicon Valley in the first place, supposedly the richest and most humane and environmentally conscious place on the planet, right? How did this happen when there’s so much wealth dripping from these tech billionaires?
Sorry, I’m just asking the questions the business media won’t. But that’s just me. Yet, since I’m on a roll, as they say, let’s ask another, shall we?
I wonder how all those that took the plunge into foregoing salary and more for those “lucrative” stock options, trading their dignity to live in shipping containers or pods while waiting for the big IPO pay-day feel about the homeless right about now?
Hint: if you thought there was an inevitable “brain drain” in Silicon Valley before – just wait till these once convinced “I’m gonna be filthy rich!” 20 and 30 somethings’ start viewing their compassion for the homeless as an inevitable warning sign that it may be them next as it all comes crashing down. Because the “suddenly” I keep alluding to, is now here.
Stock options in some of the recent debacles once deemed to be worth the equivalent for buying a modest home just weeks ago are now, maybe, worth enough to by a few bicycles. That is, if they don’t go down any further.
The message boards used primarily in “The Valley” are loaded with such comments. And this is only the beginning. Be sure to contemplate the repercussions of this very carefully. For that’s a sea-change of enormous proportions that has yet to fully “reach shore.”
The VC community that propelled all this absolute bull-crap known as “unicorns” and more is already in abject panic mode. Early investors like Bill Gurley who barely made it out of Uber without the help of what appeared to be a giant Ponzi-styled investing/valuation round from Softbank’s Mr. Son, now looks to shun the entire IPO thingy he profited so well by for direct listings.
Funny how that happens, suddenly, no? Remember when 120$Billion was a whisper #? It’s now a laugh-out-loud running joke, but I digress.
Mr. Son’s “Vision 2™” idea seems to be in the process of being shelved. Again, is this not funny when the entirety of his “Vision Fund” the once most dominant late stage stratospheric valuation enabling VC fund, appears itself to be in dire straights?
Remember: It was only weeks ago everything was going along so smoothly that there was some form of “need” to bring forth the idea for a Vision 2.” Now, suddenly, everyone is questioning not just the health or wealth of Son’s original vision, but its viability to last just another 12 more months.
Can you imagine the suddenly different gut reaction to hearing “Mr. Son, MbS is on the line, do you want to take his call?” Think about it.
If one doesn’t think any of this effects all prior “unicorns” that made it out prior and are some of the largest market cap, market dominant purveyors the world has ever seen? You would be sadly mistaken.
The once unassailable “growth” narrative combined with the nitro-mixture of central bank largess is not just fizzling out – it’s now relegated to “non-operative” status.
Over the last two weeks the Fed has begun, whether they call it QE or not, an “organic growth” program to its balance sheet. The Fed has now increased its balance sheet over the last few weeks by 181 $Billion through its Repo program. And what has the “market” done? Hint: barely remained in place.
The Fed has cut interest rates twice in recent weeks. The ECB has now signaled that incoming Ms. Lagarde will more than likely follow the path laid out by outgoing Mario Draghi. And it is with this backdrop that the markets are, again, calling for even more – or they will panic sell – suddenly.
The reason why this really is “different this time” is because these extraordinary measures being applied this time, after nearly a decade, is because there really is trouble under-the-hood of the “markets”. Real trouble. And the Fed itself is trying desperately to appear as if “They got this!”
They’ve already had to increase time frames, add more $Billions daily than anticipated, needed to add more programs than anticipated (i.e. from overnight repos to separate 14 day programs ) are already contemplating these and more may need to be permanent in nature, and the “market” narrative that central banks know what they’re doing is in utter shambles. And it’s only been two weeks since they started down this road, again.
Not forgetting things like impeachment or a primary for who can out communist the other, et cetera, et cetera, et cetera.
So, suddenly, it’s all wrapped up in the perfect question for our times, posed by the great Alfred E. Neuman…
“What, me worry?”
© 2019 Mark St.Cyr