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Authored by Jesse Colombo via RealInvestmentAdvice.com,

TechCrunch recently posted a fascinating chart of the monthly count of global VC deals that raised $100 million or more since 2007. According to this chart, a new “unicorn” startup was born every four days in 2018. Unfortunately, this is even more evidence of the tech startup bubble that I have been warning about.

Here’s the list of “unicorn” companies worth more than $1 billion as of the third quarter of 2018:

The world has gone completely startup crazy over the last several years. Spurred by soaring tech stock prices (a byproduct of the U.S. stock market bubble) and the frothy Fed-driven economic environment, countless entrepreneurs and VCs are looking to launch the next Facebook or Google. Following in the footsteps of the dot-com companies in the late-1990s, startups that actually turn a profit are the rare exceptions. Unfortunately, today’s tech startup bubble is going to end just like the dot-com bubble did: scores of startups are going to fold and founders, VCs, and investors are going to lose their shirts.

The chart below shows the Nasdaq Composite Index and the two bubbles that formed in it in the past two decades. Lofty tech stock prices and valuations encourage the tech startup bubble because publicly traded tech companies have more buying power with which to acquire tech startups and because they allow startups to IPO at very high valuations.

In the chart below, I compared TechCrunch’s monthly global VC deals chart to the Nasdaq Composite Index and they line up perfectly. Surges in the Nasdaq lead to surges in VC deals, while lulls or declines in the Nasdaq lead to lulls or declines in VC deals (yes, I’m aware that correlation is not necessarily causation, but there is a causal relationship in this case).

Please watch my recent presentation about the U.S. stock market bubble to learn more:

I believe that a very high percentage of today’s startups are actually malinvestments that only exist due to the false signal created when the Fed and other central banks distorted the financial markets and economy with their aggressive monetary stimulus programs after the global financial crisis. See this definition of malinvestment from the Mises Wiki:

Malinvestment is a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses. “Wrong” in this sense means incorrect or mistaken from the point of view of the real long-term needs and demands of the economy, if those needs and demands were expressed with the correct price signals in the free market. Random, isolated entrepreneurial miscalculations and mistaken investments occur in any market (resulting in standard bankruptcies and business failures) but systematic, simultaneous and widespread investment mistakes can only occur through systematically distorted price signals, and these result in depressions or recessions. Austrians believe systemic malinvestments occur because of unnecessary and counterproductive intervention in the free market, distorting price signals and misleading investors and entrepreneurs. For Austrians, prices are an essential information channel through which market participants communicate their demands and cause resources to be allocated to satisfy those demands appropriately. If the government or banks distort, confuse or mislead investors and market participants by not permitting the price mechanism to work appropriately, unsustainable malinvestment will be the inevitable result.

Rising interest rates and the overall tightening monetary environment will lead to the popping of today’s stock market bubble, which will then spill over into the tech startup bubble.

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With UK stocks and the pound recovering from the Brexit-related chaos of the past week, it appears traders are still unwilling to accept the fact that, in trying to ram her extremely unpopular draft agreement down the throats of intransigent Tory Brexiteers (not to mention the still-furious DUP), Theresa May is facing an impossible task.

Even analysts at now-bearish Goldman Sachs were willing to base their ‘base case’ on the likelihood that a modified version of the draft agreement would eventually pass at the eleventh hour as “it is characteristic of European negotiations to come down to the wire.”

But in a note published two days after May secured her cabinet’s reluctant backing of the draft deal (setting off a furious confrontation with Brexiteers and other slightly more moderate pro-Leave Tories wary of becoming a “vassal state” of the EU), analysts at Deutsche Bank took what appears to be a more sober look at the steep odds facing a Brexit deal. Unlike Goldman, DB dares to assign odds to the possible outcomes: and it sees the probability that Theresa May will survive a leadership challenge and successfully pass the deal in hand at a paltry 35%.

Th only reasonable scenario in which May’s deal could pass would if “significant market pressure” is brought to bear againsst the Tories. It’s more likely that one of two alternatives will follow: Either May calls for a second referendum (the dreaded “People’s vote”, which she has repeatedly insisted won’t happen.

But before any of this can happen, May will almost certainly be faced with a leadership challenge as MPs continue to file ‘no confidence’ letters with the 1922 Committee. The stakes here for the UK couldn’t be higher: While it’s very possible that May survives the vote, her margin of support is narrower than many believe. And if May loses the support of more than 130 MPs, DB believes she will resign rather than facing a defeat, setting off a chaotic leadership conference. Out of the chaos, DB expects that a Brexiteer leader would likely take power after running on an explicit ‘no deal’ platform.

Should a confidence vote be triggered, the threshold for Prime Minister May surviving is a simple majority, after which no confidence vote can be triggered for twelve months. In political terms, if she loses more than 130-140 MP votes (around 40%) survival will be more difficult and there is a strong chance the Prime Minister resigns.

Should a confidence vote be triggered today, it will happen within twenty four hours. Should this outcome materialise, we view the implications for markets as very negative. Unlike 2016, we see a strong probability that a full Conservative leadership contest results, with an ultimate vote taken to the Conservative Party membership, likely including a hard Brexiteer. The winner of the contest is likely to run on a no deal platform. We anticipate that the EU27 will make a no deal outcome their base case and both sides step up no deal planning.

Even if she survives the vote, the prime minister would still be in a serious bind. The past two days have demonstrate that there’s little political will to pass the draft agreement in its current form. And senior EU officials, including Michel Barnier, have made it clear that no more changes will be accepted.

So the only other options available to Prime Minister May would be a policy pivot towards a much softer form of Brexit (eg EEA membership plus a permanent customs union), which would be likely to gain Labour Party support in the Commons. However, it’s unclear whether the EU would be willing to allow this. The only other alternative would be a second referendum, which May has said she’s resolutely opposed to doing.

There is also considerable doubt over what question would be put forward in a referendum, should one be called ( would it be another vote on remain/leave? Or deal/no deal?). If all else fails and May is deposed, the next logical step would be for another general election (though these political gambits haven’t worked out all that well for the Tories in the past)

To be sure, DB’s base case, like Goldman’s, is that May survives a leadership challenge and that a deal is forced through at the last minute. In the meantime, DB believes the focus for their clients should be on a) whether a motion of confidence is called and what the result will be b) whether market pressure will be sufficient to change the political calculus.

But without further delay, here are DB’s odds (notably, the combined odds that May either calls for a second referendum or resigns are 50%).:

• May survives and continues with current deal, ultimately voted through due to lack of alternatives: 35% (“national interest”)
• May calls second referendum: 30% (“we will fulfill the Democratic decision of the British people”)
• May loses confidence vote/resigns, with risk of early election: 20% (“this is the best possible deal”)
• May pivots to soft Brexit position: 15% (“Brexit means Brexit”)

And if you’re still confused about the many possible scenarios that could play out from here, check out the schematic below:

Nomura has also mapped out the likelihood that the customs union backstop could be removed from the deal during the following four scenarios.

And if DB’s worst case scenario (for markets) comes to pass, May is toppled, and a “no deal” Brexit becomes imminent, here’s what that might mean for the pound.

This would take the £ to parity.
With the Turkish Lira. https://t.co/t5dLcsHt9t

— Paul McNamara (@M_PaulMcNamara) November 16, 2018

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With Bridgewater’s Ray Dalio yesterday and Fed vice chair Richard Clarida this morning the latest voices to join the chorus of warnings about the slowing US economy as Trump’s fiscal stimulus fades and turns into a tailwind, it is only a matter of time before the historic growth decoupling between the US and the rest of the world finally converges.

Meanwhile, Wall Street consensus now unanimously expects the global economy to slow next year (in Goldman’s case from 3.8% in 2018 to 3.5% in 2019) led by deceleration in the US and further softening in China.

Growth to slow in 2019E: Real GDP growth forecast, %

Beyond 2019 it gets worse: as Goldman writes in its 2019 Macro Outlook, “the risk of a global recession is likely to rise as more and more DM economies move beyond full employment.”

But while a recession in 2020 is increasingly priced in, with the market now expecting a rate cut in 2020 – if not Q4 – the question is what happens in 2019. As the following chart from Merk Investments shows, the global growth backdrop based on various PMI indexes may be even worse than consensus holds. The good news: most major PMIs remain above 50, i.e. in expansion. The bad news: at the current pace, contraction is inevitable for most developed economies.

One doesn’t need PMIs however: in many cases GDP tells the full story, and in just the past week we saw what BofA called “flash recessions” in three key economies: Japan GDP -0.3%, German GDP -0.2%, and Italy GDP 0.0%. Meanwhile China is also cracking, as its auto sales plunge -12% YoY.

To Bank of America’s Michael Hartnett, who has been bearish for much of the past several years, this means that the resilience of US data, and US credit spreads will soon to be tested.

Which brings us back to the always engaging debate about what is the level of the “Fed Put”?

The answer, according to BofA, is threefold: SPY <$250, HYG <$80, ISM new orders < 50 would trigger the Fed.

And it’s not just the Fed: China export growth would panic PBoC, while US payroll <50K would panic Trump on trade, according to BofA. Why is this important? Because as Hartnett’s Axiom 1 about markets is thatr “markets stop panicking the moment central banks start panicking.“

For now markets are still panicking, perhaps as a result of being massively wrong-footed by their capital allocation YTD: in 2018, there have been $122BN flows equities, $35BN into money market fund, and $24BN into bonds, when in reality investors should have just put it all in 3M Bills as cash outperforms stocks & bonds for 1st time since 1992.

What – to BofA – is the ultimate tell for the Fed to start panicking? The answer: rhe fall of the last bull standing. Following oil collapse, final bear dominoes to drop…HY corporate bonds…

…and after a Q4/Q1 overshoot, the US dollar.

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With traders’ expectations for sterling volatility remaining anxiety-inducingly high…

And cable unable to rebound from yesterday’s drop, amid a new onslaught of establishment fearmongery…

Bloomberg’s Macro Strategist Mark Cudmore has an answer (or a process) to the multi-billion pound question everyone is asking: what’s priced in for sterling and where’s the next big move?

Don’t try to answer. Instead, think of a framework for assessing the situation.

1. Make things as simple as possible

There are multiple scenarios but they can essentially be divided into a binary decision of either

• Chaos: a hard Brexit or no-deal Brexit starting next March (or at least that result looking likely until near the March deadline); or…

• Relief: no major change of economic status quo, either because the current Brexit deal passes, Brexit is cancelled via a second referendum, or the negotiation period is extended

2. Set a baseline

Estimate where we were at Wednesday’s close — when an agreement was in place and the Cabinet had signed off, and before any ministers had resigned. Let’s say we were pricing 50% chaos / 50% relief then.

Next, estimate how those probabilities had shifted by Thursday’s close. It looks more fraught, but not blind panic. Say 65% chaos / 35% relief.

The Bloomberg British Pound Index fell by ~2% in that period. So, based on the input probabilities, that indicates that a 15% shift toward the chaos scenario caused a 2% reaction in sterling.

But bear in mind the gyrations may be bigger, the closer we get toward 100% likelihood of one outcome or the other.

3a. Identify the next major event risks.

PM Theresa May has given no indication that she will resign, so the next major catalyst could be a confidence vote on her leadership.

Until a confidence vote is declared, sterling should slowly grind higher as the gap between the probabilities narrows.

If a confidence vote is declared, it may shift the probabilities again — to, say, a 75% chance of our chaos outcome — within just a couple of hours. A 10% probability move (rather than the earlier 15% probability shift), but at a higher-beta part of the curve, may lead traders to expect something like another ~2% drop in the Pound Index.

3b. Break those risks into a decision tree

If May loses the confidence vote, we get closer to a chaos outcome (maybe 85%), which could trigger another negative reaction in the Pound Index, again larger relative to the change in probabilities as we’re still further along the curve. Sterling could be another 2.5% weaker and still falling, though with the risk of occasional rallies on any headlines that change the narrative

If May wins the confidence vote, the relief scenario gains a bit of ground (back to, say, 40%), so the pound should strengthen. And by the time of the parliamentary vote, there’s a chance the equation could be more like 55% chaos / 45% relief as May works with a tailwind to campaign for the deal. That’s 10% better than we are now, so the pound could probably be ~1.5% higher than we currently trade

4. Weigh everything up and wait for the opportunity

Having assigned a probability that there’ll be a confidence vote, and then also whether May survives such a vote, then it’s possible to probability-weight the likelihood of where sterling will trade under the various outcomes. When it looks misaligned versus expectations of how the drama plays out — that’s the moment to pounce.

This process can obviously be extended to the parliamentary vote and all the other major steps on the way.

 

 

 

 

 

 

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A federal judge has ordered Hillary Clinton to respond to further questions, under oath, about her private email server. 

Following a lengthy Wednesday court hearing, Judge Emmet G. Sullivan (who is also presiding over fmr. National Security adviser Michael Flynn’s case), ruled that Clinton has 30 days to answer two additional questions about her controversial email system in response to a lawsuit from Judicial Watch. 

Hillary must answer the following questions by December 17 (via Judicial Watch)

• Describe the creation of the clintonemail.com system, including who decided to create the system, the date it was decided to create the system, why it was created, who set it up, and when it became operational.
• During your October 22, 2015 appearance before the U.S. House of Representatives Select Committee on Benghazi, you testified that 90 to 95 percent of your emails “were in the State’s system” and “if they wanted to see them, they would certainly have been able to do so.” Identify the basis for this statement, including all facts on which you relied in support of the statement, how and when you became aware of these facts, and, if you were made aware of these facts by or through another person, identify the person who made you aware of these facts.

Sillivan rejected Clinton’s assertion of attorney-client privilege on the question over emails “in the State’s system,” however he did give Clinton a few victories: 

The court refused Judicial Watch’s and media’s requests to unseal the deposition videos of Huma Abedin, Cheryl Mills and other Clinton State Department officials. And it upheld Clinton’s objections to answering a question about why she refused to stop using her Blackberry despite warnings from State Department security personnel. Justice Department lawyers for the State Department defended Clinton’s refusal to answer certain questions and argued for the continued secrecy of the deposition videos. –Judicial Watch

Wednesday’s decision is the latest twist in a Judicial Watch Freedom of Information Act (FOIA) lawsuit targeting former Clinton deputy chief of staff, Huma Abedin. The case seeks records which authorized Abedin to conduct outside employment while also employed by the Department of State. 

“A federal court ordered Hillary Clinton to answer more questions about her illicit email system – which is good news,” said Judicial Watch President Tom Fitton. “It is shameful that Judicial Watch attorneys must continue to battle the State and Justice Departments, which still defend Hillary Clinton, for basic answers to our questions about Clinton’s email misconduct.”

 

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Via TechZim.co.zw,

Following a spate of recent price hikes that had a 2008 feel and even included price control threats from the government it comes as no surprise that Zimbabwe’s year to date inflation figure has ballooned. According the ZimStat the year to year inflation rate stood at 20.85% in October up from 5.39% in September.

That is a shocking 15% jump. Inflation is measured by tracking changes in a predetermined basket of basic commodities that most people consume in a typical household. This is also known as the Consumer Price Index (CPI).The CPI for the month ending October 2018 stood at 118,73 compared to 101,97 in September 2018 and 98,24 in October 2017.

Given the composition of the basket used to measure CPI, the surge in the inflation rate can easily be explained by the massive panic buying, hoarding and universal price hikes that followed the policy announcements by the Fiscal and Monetary authorities which were all not received. Social medial played its role as the negative portions of these policies were sometimes taken out of concept and went viral.

Expect inflation to continue to grow in November

Although for the most part the panic buying is not as bad as it was in October prices are still on an upward trend in most shops. Bread prices was officially increased from $1.10 to $1.40. Mazoe Orange crush another family favourite product also saw its price increased to around $4. In the ICT world ZOL increased their internet prices in the face increased cost of doing business. KFC who had closed citing shortage of raw materials came back with eye popping prices of up to $70 fore a meal.

Even the current inflation figure is an understatement

ZimStat no doubt relied on the official prices in coming up with the inflation figures. The truth however is that a number of basic goods such as sugar and cooking oil are now hard to find at official prices. They are sill subject to rationing in most shops but are freely available at the black market at even higher prices. Cooking oil sells at close to $7 from $4 dollars in October at the black market.

In all likelihood the real inflation rate is even higher than the officially cited rate. The next budget is due on 22 November, hopefully therein will be measures that will tame inflation.

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