Whatever will be, will be
May 14, 2019

Blain's Morning Porridge 

"Whatever will be will be, the future's not ours to see…  "

Markets are not happy. Vix rockets higher. Safe haven trades are up. Negative stories dominate the flow – consider Apple; where the sell-off, concerns about China demand and supply, and anti-trust legislation underlie a tumble of 15 percent this month, halfway back to January! Risk appetite is definitely off.

So…when is the moment to jump in and buy this...opportunity? I suspect this downtrend has longer to run. The mood will get worse before it gets better.

On the big board, there were at least three predictable sentiment shocks we knew were possible through H1 2019. One has happened, one is happening, and the third is looking nailed on:

Deepening trade division: has happened as China/US negotiations brole down;

New tech repricing moment: is happening as IPOs (initial public offerings) stall - Lyft and Uber being prime examples;

European Union election resulting in extreme populist win: going to happen. 

These were all anticipated shocks. There is no point in worrying today about things we know we are going to have worry about tomorrow – until we do! But, it's the "no-see-ems" that shock and truly destabilize markets. No-see-ems are the black swans we just don't anticipate – they could come from anywhere.

In US terms: maybe it's Donald Trump's baiting of the Fed (US Federal Reserve)? Does the apparent attempt to sabotage oil traffic (which looks surprisingly inept) highlight the possibility of a worrying new Trump "outward bound" initiative? Does Trump's welcome for Hungary's divisive Prime Minister Viktor Orban, an unsubtle insult to Merkel et al, herald a new division with Europe?

Or Europe: Brexit confusion? EU wobbles? Choosing a successor to President Draghi at the European Central Bank? Or Asia: China? India? Malaysia? Islam? 

I could go on, but if you are watching the shadows all the time…then you might miss the downright obvious…which takes me back to Uber. I'm wondering if it's more than just a story, and a catalyst for something worse to come.

As I write the Uber IPO is down 20 percent. I was asked yesterday for my opinion – if I had one, on where it should trade. I don't have a clue. I don't know how to value such a company – I'm still stuck in the past where I expect companies to make money and pay me dividends, and they were the ones to own. I expect them to dominate their markets through product, service and innovation. I don't believe in monopolies as good or long-lasting. In short, I am some sort of investment dinosaur in this modern age.

I am a fool because I don't see the fantastic  value in Uber – which can lose US$3 dollars a share every quarter, fail to increase its market share, suffer and acknowledge increasing competitive pressure and still be a must-own stock. At one point recently – pre-IPO – the company was apparently worth $120 billion based on where the early funding rounds priced. Now it's worth slightly more than half that.

Unlucky timing on the IPO – straight into the risk-off China sell-off...or was it? Have we reached the "tide-goes-out" moment? If we have, then Uber (and Lyft, which is being massively short-squeezed), could be the least of our worries. 

For the avoidance of doubt I know absolutely nothing about Uber. I thought it was a taxi app… but that apparently massively underestimates the intrinsic value of its "ride-hailing" app technology and associated lines such as Uber Eats and driverless cars which will mean they don't have to pay drivers. That and the fact they don't own any taxis and don't employ any drivers anyway. The fact I have six "taxi apps" on my phone – and none of them is Uber - is apparently irrelevant in terms of Uber's ability to monetize the tech. How and when I ask??

Since I know nothing, let's quote others…

Bloomberg quotes Ygal Arounian of Wedbush Securities saying: the share slump reflects investor scepticism about the size of the ride-hailing markets, Uber's ability to execute on food and package delivery, and its push into autonomous vehicles. 

The Financial Times quotes a research firm blaming the underwriters: "discovering the correct price and floating the shares without tumult has now defied two syndicates of highly competent Wall Street Underwriters," says Triton Research. 

Or how about a retail sales specialist saying it "lacked push" from retail, "instead of buying 500 shares, you had [retail accounts] buying 100 shares." Maybe the greater fools aren't buying?

Or how about Asad Hussain, emerging tech analyst at Pitch Book: "We believe the volatility surrounding both Uber and Lyft is partially driven by investor hesitance to invest in highly capital-intensive, deeply unprofitable and untested business models at this late stage of the economic cycle."

Is Uber just another example of the unintended consequences of the quantitative easing era? We now know free money means too much money chasing financial returns. Which is why folk started piling their money into private equity and venture capital funds – in search of returns. Too much money means they started funding stuff that maybe they should not have been funding. And it became important to believe they are funding the right stuff, and willing the moment to get out and pass the investment to the next bigger fool? 

Hence my question. Is Uber's wobble a warning that the Emperor's New Clothes moment is upon us? The WeWork IPO is up next, and I reckon it started out naked and remains so!

Out of time, and back to the day job..

Bill Blain

Shard Capital





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Blain's Morning Porridge 

"Whatever will be will be, the future's not ours to see…  "

Markets are not happy. Vix rockets higher. Safe haven trades are up. Negative stories dominate the flow – consider Apple; where the sell-off, concerns about China demand and supply, and anti-trust legislation underlie a tumble of 15 percent this month, halfway back to January! Risk appetite is definitely off.

So…when is the moment to jump in and buy this...opportunity? I suspect this downtrend has longer to run. The mood will get worse before it gets better.

On the big board, there were at least three predictable sentiment shocks we knew were possible through H1 2019. One has happened, one is happening, and the third is looking nailed on:

Deepening trade division: has happened as China/US negotiations brole down;

New tech repricing moment: is happening as IPOs (initial public offerings) stall - Lyft and Uber being prime examples;

European Union election resulting in extreme populist win: going to happen. 

These were all anticipated shocks. There is no point in worrying today about things we know we are going to have worry about tomorrow – until we do! But, it's the "no-see-ems" that shock and truly destabilize markets. No-see-ems are the black swans we just don't anticipate – they could come from anywhere.

In US terms: maybe it's Donald Trump's baiting of the Fed (US Federal Reserve)? Does the apparent attempt to sabotage oil traffic (which looks surprisingly inept) highlight the possibility of a worrying new Trump "outward bound" initiative? Does Trump's welcome for Hungary's divisive Prime Minister Viktor Orban, an unsubtle insult to Merkel et al, herald a new division with Europe?

Or Europe: Brexit confusion? EU wobbles? Choosing a successor to President Draghi at the European Central Bank? Or Asia: China? India? Malaysia? Islam? 

I could go on, but if you are watching the shadows all the time…then you might miss the downright obvious…which takes me back to Uber. I'm wondering if it's more than just a story, and a catalyst for something worse to come.

As I write the Uber IPO is down 20 percent. I was asked yesterday for my opinion – if I had one, on where it should trade. I don't have a clue. I don't know how to value such a company – I'm still stuck in the past where I expect companies to make money and pay me dividends, and they were the ones to own. I expect them to dominate their markets through product, service and innovation. I don't believe in monopolies as good or long-lasting. In short, I am some sort of investment dinosaur in this modern age.

I am a fool because I don't see the fantastic  value in Uber – which can lose US$3 dollars a share every quarter, fail to increase its market share, suffer and acknowledge increasing competitive pressure and still be a must-own stock. At one point recently – pre-IPO – the company was apparently worth $120 billion based on where the early funding rounds priced. Now it's worth slightly more than half that.

Unlucky timing on the IPO – straight into the risk-off China sell-off...or was it? Have we reached the "tide-goes-out" moment? If we have, then Uber (and Lyft, which is being massively short-squeezed), could be the least of our worries. 

For the avoidance of doubt I know absolutely nothing about Uber. I thought it was a taxi app… but that apparently massively underestimates the intrinsic value of its "ride-hailing" app technology and associated lines such as Uber Eats and driverless cars which will mean they don't have to pay drivers. That and the fact they don't own any taxis and don't employ any drivers anyway. The fact I have six "taxi apps" on my phone – and none of them is Uber - is apparently irrelevant in terms of Uber's ability to monetize the tech. How and when I ask??

Since I know nothing, let's quote others…

Bloomberg quotes Ygal Arounian of Wedbush Securities saying: the share slump reflects investor scepticism about the size of the ride-hailing markets, Uber's ability to execute on food and package delivery, and its push into autonomous vehicles. 

The Financial Times quotes a research firm blaming the underwriters: "discovering the correct price and floating the shares without tumult has now defied two syndicates of highly competent Wall Street Underwriters," says Triton Research. 

Or how about a retail sales specialist saying it "lacked push" from retail, "instead of buying 500 shares, you had [retail accounts] buying 100 shares." Maybe the greater fools aren't buying?

Or how about Asad Hussain, emerging tech analyst at Pitch Book: "We believe the volatility surrounding both Uber and Lyft is partially driven by investor hesitance to invest in highly capital-intensive, deeply unprofitable and untested business models at this late stage of the economic cycle."

Is Uber just another example of the unintended consequences of the quantitative easing era? We now know free money means too much money chasing financial returns. Which is why folk started piling their money into private equity and venture capital funds – in search of returns. Too much money means they started funding stuff that maybe they should not have been funding. And it became important to believe they are funding the right stuff, and willing the moment to get out and pass the investment to the next bigger fool? 

Hence my question. Is Uber's wobble a warning that the Emperor's New Clothes moment is upon us? The WeWork IPO is up next, and I reckon it started out naked and remains so!

Out of time, and back to the day job..

Bill Blain

Shard Capital



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