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Tyranny, Tacos and Trump

January 18th, 2016 No comments

Source: Idaho Lunch Lady Fired for Giving Free Meal to Student in Need Offered Job Back by School District – ABC News

That a story like this even makes the news is an indication of how society’s rules have become so disconnected from the values of greater society.  The onslaught of combative lawsuits, threatened legal actions and oppressive regulations ravaging western societies for the past few generations have successfully beaten and bullied  much of what passes as common sense and decency into retreat.  The concept of ‘doing the right thing’ over doing the legal thing is becoming as abstract as a rotary phone.  In effect, the nation is populated by rule-breakers at every level in society, it’s just a matter of when they get caught.

It appears that people are willing to be governed mainly by byzantine rules enforced by fearful lackeys rather than as directed by their inner moral compasses.  They have ceded the rules of conduct within society to the interpretation by the present day ruling class….lawyers.  Lest this sound like so much hyperbole, there is ample evidence to assure that it’s not. This is hardly an original thesis.  In her revealing 2002 book, The Case Against Lawyers, Judge Catherine Crier detailed the sinister creep of the legal and political class in undermining the very freedoms for citizens that they purportedly champion.

That this compassionate Idaho worker was accused of stealing for the simple act of feeding a poor kid should be repulsive to anyone who considers themselves moral.  Someone decided to apply the letter of the law to this poor woman as if it was a high crime.  While the story may seem outrageous to most of us, we’ve likely all been at the receiving end of a similar bit of legal heavy handedness.  People resent this stuff; they begin to wonder exactly who are making the rules.

Meanwhile in California, a Taco Bell executive was recorded on camera raining blows to the head of his unfortunate Uber cab driver.  Since most people frown upon such behavior, he soon became an ex executive when fired by Taco Bell once the video came to public attention. Rather than slink away in shame, this ex executive has instead decided to double down on his cowardly behavior by finding a lawyer to sue for $5 million dollars claiming that he never gave permission to be filmed beating up the driver.  Of course, it’s an easy defense, since the driver can claim that he was not given advance notice of a beating. The fact that this loser would even be able to file such an action is absurd. Preposterousness has never been an obstacle for lawyers.   Some may recall a Harvard law professor figuratively kicking sand in the face of a restauranteur for an innocent error on a bill.

What does this have to do with Donald Trump? Nothing directly, but also everything. His crass media shtick is certainly not what you’d want your kids to emulate, but this same thumbing of expected conventions has resonated with an enormous segment of people who are  tired of being told what is correct to say or do by political leaders and by media.  People prefer to make their own choices on religion, on assembly, on speech, on firearms, on climate fiction, on foods they eat, on cars they drive and how their kids are educated. They find in Trump, a plain spoken champion willing to push back against political correctness, against the tyranny of legal red tape which smothers common sense at all levels.  They find in him a person not beholden to influential moneyed constituencies pushing narratives which are at odds with their own experiences.  Without specificity, Trump seems to be the guy that will do the right thing, a trait that many can identify with.

Of course, he is hardly perfect and we don’t know if he’ll do all the things that he promises; that would be delusional.  For now, warts aplenty, he makes the most noise and gives voice to people that other politicos apparently don’t.  It may just be that he’s  the most successful demagogue of this time. But at least he’s not a lawyer.

 

Unicorns And Bears

January 14th, 2016 No comments

Source: Shares of Twitter Are Hitting New Lows – Bloomberg Business

Almost 2 years ago, we discussed the valuation of what we described as ‘gossip stocks‘, which referred to publicly listed businesses capitalizing on people’s insatiable appetite for social media applications. This included Facebook, Linked In, Zynga and of course Twitter.   Over the past  year, many other newly minted stocks in the new technology space have been dubbed “unicorn” stocks. This is a reference to the fact that while commanding laughable valuations in the private market and creating gobs of paper millionaires, actual revenues fall woefully short of expectations once they are publicly traded. So while the bankers and venture guys talk about future earnings gushers; like unicorns, no one ever sees them.

This great deflation of expectations on  social concept stocks has been masked by the general buoyancy of the overall markets in the past year.  Market nerds will point out that even as markets ratcheted higher and higher, there were fewer and fewer stocks making the move up.  Now, all of a sudden as the general market looks creakier, the enormity of the losses incurred by holders of these unicorn issues are coming to light. Here is a short list of market capitalizations of some selective unicorn stocks as of the close today:

Issue                          Market cap Jan 2014      Market cap Jan 2016       Peak market cap

Twitter                      $48 billion                         $13 billion                        $ 51 billion

Facebook                  $122 billion                       $215 billion                      $ 250 billion

Zynga                        $n/a                                    $2.2 billion                       $ 4.8 billion

Linked In                 $23 billion                          $23 billion                        $ 30 billion

GoPro                       $n/a                                     $2 billion                          $ 10 billion

Tesla                         $ 20 billion                        $ 26 billion                        $ 35.3 billion

Alibaba                     $ n/a                                   $ 17.5 billion                     $ 30 billion

As we note, Twitter has been one of the major losers in the valuation shrinkage metric, but other established technology stalwarts have also turned sharply lower, such as:

Apple                        $430 billion                        $ 537 billion                     $ 742 billion

Yahoo                       $ 38 billion                          $ 28 billion                       $ 49 billion

While this list is selective, they represent some pretty big write downs from their respective peak valuations. In the case of stalwarts Apple and Yahoo, they are considered bellweathers even though they are well past concept stage.

Once stocks become public, there is a lot more scrutiny on the enterprise’s viability.  There’s only the hard reality of  the next quarter’s earnings to justify valuation, not the extrapolation into infinity used by MBA whiz kids during the initial private to IPO stage.

Inexperienced market players may attribute the collapse in valuation as a function of an inability to execute on the part of the companies. The truth is actually much simpler.  In the case of newly minted issues, they may be surprised to find out that the original valuation and extrapolated cash flows were simply made up out of thin air.   That’s right, completely fabricated.  As long as backers are willing to fund the companies and the bankers agree to subsequently float at an agreed upon valuation, virtually any valuation can be had; especially with new concept companies having no history.  Makes sense. If you’re going to make up a number, make it a big one.  Who needs Powerball, when you can just write your own ticket?

The basic premise of most unicorns is that novelty and market share are more important than profitability…which will come…eventually…they hope.   In fairness, that actually did work for Amazon, a survivor of the last dot com bubble.  Amazon however, actually does have a business model and it’s not entirely based on selling ads.  As in all market cycles, the excesses and fluff eventually disappear, to be replaced by different versions of fluff in the next cycle.  As the general market begins what looks to be a longer term retracement, there may be more than just unicorns that people should be leery of.  The creature that people should really be afraid of…is the bear.

Update: Uber

Update 2: Crash of Tech Stocks