Author: admin

Authored by John E. McNellis, Principal at McNellis Partners, for The Registry; via WolfStreet.com,

The fatal flaw of meal-delivery unicorns…

What do DoorDash, GrubHub, Postmates and Uber Eats have in common with Lassie?

Nothing. They’re dogs; Lassie’s a superstar.

What do they have in common with each other? Everything.

They take the world’s second oldest profession – Babylonia had delivery boys – sprinkle it with tech dust, click their ruby slippers, chant “There’s no place like Silicon Valley” and hope to become unicorns. (By the way, since unicorns are entirely mythical, wouldn’t the Valley be wise to pick another moniker for its wannabe superstars?)

There’s no secret to success in tech. But like hitting a 98 mph fastball, it’s easy to describe, nearly impossible to do: Create a great product that can scale. Even better if you can build a patent moat around it. If, after five hard years of R&D, you create killer software at a cost of $100 million, then the first product you ship for $1,000 comes at a loss of $99.99 million. But by the time you’ve sold your millionth unit at almost no additional cost, you’ve grossed a billion. That’s scale.

Here’s the rub: You can scale intellectual property, you can’t scale labor. Your millionth pizza costs as much to deliver as your first.

Yet the meal-delivery guys claim they will scale when they create a critical mass. They will have the density they need to become profitable (none are yet) if they can somehow bag a huge market share. The density argument goes like this: if we can deliver enough meals in a given trade area, we can be like the post office in terms of efficiency (yes, the post office, I’m not being ironic). Nice idea, but it doesn’t wash.

The post office is a route business – your mail carrier hits the same couple hundred houses on the identical route every day. That beats 200 homeowners making 200 trips to the post office.

Meal delivery is a discrete business. No one else in your zip code is ordering spaghetti Bolognese from Trattoria Pastaria at 6:30 on a Tuesday evening. Whether the Uber Eats guy drives to the restaurant or you do, it’s the same (except the food is hotter if you do it yourself). There is no way to string that discrete delivery into an efficient, cost-effective route. To that point, old-school pizza joints average about 2 deliveries an hour and their drivers start at the restaurant. Can a free-floating DoorDasher do more than two an hour?

In short, Mount Everest is scalable, meal-delivery companies are not.

This claim of eventual profitability calls to mind the very old joke about the jeweler who sold his diamonds below cost, losing a little on each sale. “I make it up in volume,” he said. He didn’t and neither will the meal-delivery companies.

Let’s get specific. DoorDash, Postmates and Uber Eats all deliver for McDonald’s. According to that most reliable of all sources, the internet, they charge about $5 to deliver your burger and fries. And it takes about 30 minutes from the time you order to delivery. This means that, like pizza, the driver can do about two trips an hour. This is a truly great service for the consumer too stoned to get his own milkshake at midnight.

But there is no way, no way, in the world this can be profitable for the meal-delivery companies (or the restaurants if they do it themselves). Ten bucks an hour won’t even pay for the driver’s gas and minimum wage, let alone his incidental car costs. What’s left for DoorDash on ten bucks an hour? Nothing.

Consistent with this column’s reputation for highly thorough investigative journalism, I figured what the hell and ordered home delivery from a local restaurant Saturday night. DoorDash delivered the correct order hot within 30 minutes of ordering at a cost to me of 99 cents. Yes. 99 cents. As a consumer, I couldn’t have been more pleased. If I were a DoorDash investor, maybe not so much; somebody’s losing big here.

The driver told me he does ok thanks to tips. He added that he did better as a straight-up Uber driver (which, by the way, ain’t that great), but he couldn’t stand the drama: people throwing up in his car, the fighting, drinking and taking drugs while he was driving.

But sooner or later, Wall Street and the VCs will tire of handing over free money to these guys. They will insist they turn a profit, that they charge a fair price to make that spaghetti run.

Who’s going to pay for it? Everyone has a different number for the last-mile cost, but let’s say it’s twenty bucks if you throw in a reasonable profit. The 99 percent aren’t going to pay $20 extra for a $15 pizza or even a $50 fettuccine Alfredo. The lazy 1 percent would, but oops — bad business model — they’re only 1 percent of the population.

So, stick the restaurants with the delivery cost? Good luck, they’re already on life support. Being in the retail business means that — just like your children — you hear from your tenants whenever they have problems. And we’re hearing from our restaurants. They’re fighting to adapt to minimum wage hikes and cost increases in a highly competitive environment. Our restaurant tenants are scattered throughout Northern California’s more affluent towns; if they’re struggling — and they are — everyone is struggling.

Virtually free meal-delivery is yet another concept out of Silicon Valley that is:

a) great for consumers (as are WeWork, Uber and Lyft);

b) guaranteed to never make a profit (as are WeWork, Uber and Lyft); and

c) proof that the smartest guys in the room are no smarter than the rest of us.

*  *  *

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After a morning session of public testimony from Lt. Col. Alexander Vindman and Russia adviser Jennifer Williams, former National Security Council aide Timothy Morrison and Kurt Volker, Trump’s former special envoy to Ukraine for peace negotiations will appear for testimony.

Watch live:

The retail apocalypse has been absolutely devastating; approximately 12,000 stores are expected to or have already closed in 2019. This has prompted Fitch Ratings to downgrade some classes of notes in two commercial mortgage-backed securities (CMBS), creating concern about significant future losses originating from their exposure to shopping malls, reported International Financing Review (IFR).

The story behind the retail industry continues to be a troubling one. 

Retailers have insurmountable debts, overexpanded with cheap money, private equity-ownership pressures, and are now facing changing consumer trends that have made e-commerce more popular than ever before. 

As a result, many retailers are rapidly shrinking their footprint ahead of the next recession, or in some cases filing for bankruptcy to either restructure or completely liquidate all assets. 

The rating agency understands these significant retail trends. It has decided on Monday to downgrade four classes of notes in the UBS-Barclays Commercial Mortgage Trust 2012-C2, and four classes of notes in Morgan Stanley Capital I Trust 2011-C2.

The UBS notes have loans with four shopping malls in Connecticut, Illinois, Louisiana, and South Carolina, representing 27% of the loan pool. It’s likely the downgrades by Fitch are ahead of these shopping malls going bust and could mean severe losses are ahead for investors.

Morgan Stanley Capital I Trust 2011-C2 has loans tied to two shopping malls in Texas that represents 28.5% of the collateral pool, Fitch said.

The rating agency warned, “the ability of these loans to refinance at their scheduled April and June 2021 loan maturities” could be challenging for the mall loans in Morgan Stanley Capital I Trust 2011-C2.

Both CMBS deals have shopping malls anchored by department stores Sears, Dillard’s, Macy’s, and JCPenney, many of which are going out of business at record speed. 

With consumers weakening and retail sales expected to slump into 2020, Fitch is getting ahead of the retail bust and warning investors that CMBS deals with heavy mall exposure could see significant losses ahead.

Notably, amid stagnant retail stock prices and a recent collapse in the buying-climate, CMBX prices have continued to zoom higher (especially since The Fed began NotQE).

Source: Bloomberg

The big question is simple – Is Fitch’s warning today idiosyncratic to those tranches; or systemic to the CMBS market overall – signaling stocks and surveys maybe, right?

Authored by Tsvetana Paraskova via OilPrice.com,

One of the world’s most influential hackers is offering up to US$100,000 in cryptocurrency to hackers who break into oil firms and banks to leak information of public interest.  

According to a new manifesto, “Hacktivist Bug Hunting Program,” the well-known vigilante hacker would pay other hackers if they hack companies and leak documents that could be of public interest. Oil services giant Halliburton—alongside South African mining companies and an Israeli spyware vendor—are among the examples the hacktivist has mentioned as potential targets in their manifesto.

“Hacking to obtain and leak documents with public interest is one of the best ways for hackers to use their abilities to benefit society,” Motherboard quoted the manifesto as saying.

“I’m not trying to make anyone rich. I’m just trying to provide enough funds so that hackers can make a decent living doing a good job,” the hacktivist says.

Hacktivism is a powerful tool to “fight inequality and capitalism,” according to the hacktivist who goes by the nickname Phineas Fisher.

Companies and software developers themselves often launch the so-called ‘bug bounty programs’, rewarding hackers for uncovering potential bugs and vulnerabilities on their systems, in order to bolster their cyber security against attacks, hacks, or leaks.

Just last week, Mexico’s state oil firm Pemex was hit by a ransomware attack, which caused administrative operations at the company to grind to a halt, but work was restored soon after.

The incident highlighted once again the growing importance of cybersecurity in the oil and gas industry and all its critical infrastructure across the globe.

Pemex has no intention of paying the ransom that cyber attackers have requested, Mexico’s Energy Minister and Pemex board chair Rocio Nahle said a day later. The attackers had demanded they be paid US$5 million in ransom in bitcoin, according to various media reports last week.

The startup called Juno that sought to establish itself as a competitor to Uber is no longer doing business in New York.

The company had billed itself as a “kinder” and “gentler” way to get a ride – and as we all know, “kind” and “gentle” gets you precisely nowhere in downtown Manhattan.

The company is now inviting its users to join Lyft, Bloomberg  reports.  Juno is owned by Gett Inc., which is a Tel Aviv based ride-hailing company that spent $200 million to acquire Juno in 2017.

On Monday, Gett said that it was shutting down Juno and was instead starting a partnership with Lyft, which will allow Gett’s clients to get rides by Lyft through its app beginning next year. 

The company said that more focus on its corporate clients and “misguided regulations” on ride-hailing companies in New York City were to blame for it shutting down. Gett’s CEO, Dave Waiser, said: “This development reinforces Gett’s strategy to build a profitable company focused on the corporate transportation sector, a market worth $1 trillion each year.”

The company was formerly thought to be a formidable competitor to Uber in the busy New York City market. It launched billing itself as a driver-friendly alternative to Uber and offered equity packages to its drivers, promising that they would be able to share in the wealth if the company made it big. 

Payouts to drivers “did not materialize” after the company’s sale to Gett, which is now valued at $1.5 billion. The company has raised more than $800 million from investors and had mulled a sale of Juno – obviously unsuccessfully – last summer.  

Authored by Irina Slav via OilPrice.com,

U.S. sanctions on Venezuela have been squeezing the life out of its economy in an attempt to remove the government of Nicolas Maduro from power, but so far those sanctions haven’t been entirely successful. The reason: Venezuela is still exporting oil.

So far in November, according to OilX data, Venezuela has exported an average of 530,000 bpd, up from 523,000 bpd in October.

Bloomberg reports, citing shipping data, that Venezuela had loaded almost 11 million barrels of crude in just the first 11 days of November, which is more than twice as much as it did in the same period last month. Most of the oil seems to have gone to India and China, with half of the vessels transporting it turning their transponders off to avoid detection.

This is the now-standard tactic used by Iran to export its oil amid U.S. sanctions, too. Turning off the geolocation device is what Iranian tankers do when they leave port—or in the open sea—and they only turn them off when they approach their port of destination. This and ship-to-ship transfers have helped Tehran continue taking in oil revenues despite the sanctions.

These same tactics are being used by Venezuela now as well.

Venezuela’s crude oil production in September averaged just 644,000 bpd, according to OPEC’s latest Monthly Oil Market Report. That’s down from 727,000 bpd in August and an average 975,000 bpd over the first half of the year.

In September 2018, Venezuela was pumping more than twice the October level, at 1.354 million bpd.

This goes to show that sanctions are working to curb oil production, but they have not been able to stifle Venezuela’s exports to zero. The country has oil-for-cash agreements with China and Russia, and although it struggles to repay this debt with its limited amount of oil, it is paying down some of it – apparently without violating any sanctions.

One vessel Bloomberg’s data detected recently was the Dragon – a Liberian-flagged Very Large Crude Carrier, whose last GPS signal came off the French coast. The tanker, however, turned out to be offshore Venezuela where it loaded 2 million barrels of local crude for Russia’s Rosneft, one of Caracas’s biggest creditors.

Both the Russian company and the operator of the Dragon told Bloomberg that they have not violated any sanctions. One way Rosneft is doing this is by selling the oil on and getting paid in fuel. This is how India has been getting some of its Venezuelan oil shipments despite pressure from Washington to cut these imports off completely.

So, there are many ways to avoid detection from sanction-prone parties at sea and Venezuela has been using them, like Iran.

The practice of transponder switch-offs has become even more popular recently, after Washington slapped sanctions on several Chinese shippers for violating its sanctions against Iran. Meanwhile, China’s oil imports from ship-to-ship transfers soared threefold in September, with a lot of the oil coming from either Iran or Venezuela, according to analysts.

Venezuela is certainly having no fun in trying to keep its oil industry going amid sanctions and the decay that follows years of underinvestment in field and equipment maintenance. Yet the most fundamental truth of basic economics is helping it trudge along: for as long as there is demand, there will be supply.

There is still demand for Venezuelan oil, and until it’s there, Venezuela will find ways to ship the oil abroad.