Tag: finance

Paul Brodsky: “Only The Court Jester Gets To Speak Truth To Power And Laugh About It”

By Paul Brodsky of Macro Allocation Inc.

“A stock is like a living organism. A sparrow, say. And we are able to create an emergent-based abstraction of that sparrow, which closely approximates the sparrow itself, accounting for migration patterns, wind, weather, and other variables. We can create a similar abstraction of a stock combining the information from the specific ETFs, which represent its underlying dependencies. And if we apply this to the stock we can predict its delta, following the path of its extracted self, because nature follows abstraction.”

      – Taylor from Billions

Surely, You Jest

The writers of Showtime’s Billions are nothing if not funny. The gibberish above captures perfectly the philosophical yearning of hedge fund men and women in their tortured quest for higher meaning. (As it turns out, the show does not limit its characters to men and women. Taylor is played by an actor that self-identifies sexually in real life as “non-binary” and in the show demands the pronouns “its” and “their” instead of he, she, his or her.)

To be sure, “its” description of stocks as create-able and manipulate-able abstractions rings true, especially today when factors exogenous to earnings and commercial prospects seem to influence market prices more than rational demand for equities. Don’t tell anyone but market manipulation is legal when parallel abstractions are created and executed by self-serving political and economic policy makers; not so when they are perpetrated by self-serving financiers. We suspect the show’s US Attorney for the Southern District of New York will eventually inform Taylor that hedge funds don’t get to create and manipulate their own abstractions (and if it wants to do so, then it should work at the Fed).

Another fun second-hand account of the markets was on offer this weekend in an established financial column that criticized how “financial philosopher kings” like to opine on “the meaning of life” and “the nature of happiness” instead of…providing graphs! We were to urged to believe, we suppose, that graphs are more scientific and allow anyone to more accurately extrapolate the future from the past.

The column’s current steward (it has been around for decades) then endorsed an analyst who noticed “booming” trends in US interior cities and millennial labor participation (for which he presumably had many graphs). Awkwardly, the analyst concluded there will be only modest moves in stocks and bonds, and so the column successfully expended a thousand words to inform readers that financial markets still exist. Some of those words were ironically spent informing readers that a picture is worth a thousand words, and so it may have been more efficient (and less ironic) to instead paste a pinup of Warren Buffett, the biggest supporter of buy-and-hold-no matter-what investing, on a graph of the S&P 500:

Buffet is still a forward-looking philosopher king but stays mute when valuations are high. We are more drawn when values are high to those like Paul Tudor Jones, who allegedly told a private meeting at Goldman Sachs that the Fed should be terrified to look at a chart, ironically cited often by Warren Buffet, that shows the stock market woefully out of balance with the broader economy.

Graphs themselves are funny things. Trying to gain insight by identifying trends without ratios, which provided context, is like trying to clap with one hand. Booming cities based on health care revenues is a signal to us how tenuous economic growth is, not how strong or sustainable it may be.

Alas, our personal fate is not to have billions, or to play an asexual financial automaton on the show of the same name, or to be a financial philosopher king. We will have to be satisfied with being invited to Court every now and then, even if it is as a jester. Who else can speak truth to power and laugh about it?

via http://ift.tt/2p5DpWt Tyler Durden

Iraq War Architect, Paul Wolfowitz, Is Becoming Optimistic On Trump

Authored by Mike Krieger via Liberty Blitzkrieg blog,

So we tried that thing called regime change in Iraq, and failed miserably. We tried it in Libya, and now there are now active slave markets in the place. But we satisfied the objective of “removing a dictator”. By the exact same reasoning, a doctor would inject a patient with “moderate” cancer cells “to improve his cholesterol numbers”, and claim victory after the patient is dead, particularly if the post-mortem shows remarkable cholesterol readings. But we know that doctors don’t do that, or, don’t do it in such a crude format, and that there is a clear reason for it. Doctors usually have some skin in the game.

 

And when a blow up happens, they invoke uncertainty, something called a Black Swan, after some book by a (very) stubborn fellow, not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, avoid engaging in an action if you have no idea of the outcomes. Imagine people with similar mental handicaps, who don’t understand asymmetry, piloting planes. Incompetent pilots, those who cannot learn from experience, or don’t mind taking risks they don’t understand, may kill many, but they will themselves end up at the bottom of, say, the Atlantic, and cease to represent a threat to others and mankind.

 

So we end up populating what we call the intelligentsia with people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions, repeating modernist slogans stripped of all depth. In general, when you hear someone invoking abstract modernistic notions, you can assume that they got some education (but not enough, or in the wrong discipline) and too little accountability.

From Nassim Taleb’s recent post: On Interventionistas and their Mental Defects

I spent the last 50 minutes listening to an interview of neocon Iraq war architect Paul Wolfowitz, a truly unfortunate experience which felt like a tomahawk missile attack against my cerebrum. Regrettably, we still live in a world where you have to listen to the musings of such war criminals, as they continue to have considerable influence in certain circles of American power, and quite possibly within the Trump administration itself.

There were four main takeaways from the man’s monstrous, deluded ramblings. First, he hates being called a neocon, so make sure you continue to do so — publicly and with as much vigor as possible. Second, he’s learned absolutely zero lessons from the spectacular, historic failures that resulted from his neocon policies. This makes perfect sense, because as Taleb so eloquently noted on his piece referenced at the top, mentally deranged people in leadership positions who blow up the world suffer no consequences for their actions. Indeed, they are often rewarded handsomely for their failures (a similar thing happens in corporate America, see Wall Street). When failure is rewarded, you get a lot more of it, which pretty much summarizes the U.S. experience in the 21st century. Third, he didn’t vote for Hillary or Trump in the 2016 election. He considered voting for Hillary, but what gave him pause was the fact she wasn’t hawkish enough on Russia.

Given the above, you’d think such a man would have little to no influence within the Trump administration. Unfortunately, this is not the case, which brings us to the final takeaway. Not only has Wolfowitz become more optimistic about Trump (we all know how much bombing and destruction turns him on), but he may have his neocon tentacles deep within the Trump camp via his relationship with both General McMaster and General Mattis.

Here are a few highlights from the interview via Politico (click the link to hear the whole thing):

Iraq might descend into “chaotic violence” – or worse. The broader Middle East could “go to hell” all over again.

 

If the United States doesn’t step up under President Donald Trump, Paul Wolfowitz warns in a new interview for The Global POLITICO, our weekly podcast on world affairs in the Trump era, it would represent an “opportunity” blown, a missed chance that would result in “lost American influence” and a win for “hostile actors.”

Oh so things are going swimmingly in the Middle East. Who knew.

Yet Wolfowitz has not entirely given up on the idea that the United States is essential to stability in a region that has seen very little of it. Without American involvement, for instance, he fears Iraq could splinter apart entirely. “The alternative is to let a very important, critical part of the world go to hell literally and lose American influence,” he says. “We may not like to talk about oil, but this is the engine of the world economy and if it’s dominated by the wrong people, the consequences here in the United States are very serious.”

The guy has some nerve, but at least he doesn’t pretend U.S. interventions are driven by “human rights” concerns.

To liberals and other critics, Wolfowitz would be the last person they want Trump to listen to. Long a lightning rod because of the havoc unleashed by the Iraq invasion, Wolfowitz has never apologized for advocating the war, although he has said—and repeated in our conversation—that it was not carried out as he would have wanted it to be. In recent days he‘s jumped right back into the public debate, nudging President Trump from the pages of the Wall Street Journal to follow up his bombing strike in neighboring Syria with more aggressive action—and, he tells me, privately emailing with Trump Defense Secretary Jim Mattis and national security advisor H.R. McMaster, both longtime contacts since his Bush days, in hopes they will pursue a U.S. strategy of stepped-up engagement in the Middle East.

There’s that relationship I alluded to earlier, but there’s more. Specifically, Mattis was Wolfowitz’s senior military assistant when he first came to the Pentagon in 2001.

Moving along…

Like many other hawkish Republicans—“do me a favor,” he says, and don’t call him a “neocon,” which he believes is a charged word wielded by critics—Wolfowitz adamantly opposed candidate Trump in 2016, put off by his “America First” rhetoric, his rejection of the Iraq war as a disastrous mistake and his praise for Russian President Vladimir Putin and other autocratic leaders.

 

Indeed, Wolfowitz tells me that he did not vote for Trump because he feared he would be “Obama on steroids” given Trump’s campaign-trail reluctance to project American power and leadership in the Middle East and elsewhere—and that he decided not to vote for Hillary Clinton either because he was not sure she would pursue tougher policies and thought she had joined Obama in misjudging Putin with their failed Russia “reset” policy.

 

When I ask about Trump, Wolfowitz waxes surprisingly optimistic about his chances in a region that has humbled many an American president before him. “Look, he’s said a lot of things. He’s changed a lot of things,” he says. “I don’t think anyone would deny that he’s opportunistic, and I don’t think anyone would deny that he would like to be ‘the greatest president in modern times’ or ‘huge’ or you pick your adjective. And I think to achieve a Dayton-like peace settlement in Syria would not only be something that would be widely acclaimed, it would be hugely in the interest of the United States.”

 

It’s a reminder of what a head-spinning few weeks it’s been for anyone paying attention to American foreign policy, with Wolfowitz and others who openly proclaimed Trump unfit for the presidency now contemplating the opportunity his presidency presents to advance their policy agenda, and even those who were Trump’s harshest critics within the Republican Party only a few weeks ago now praising him.

 

“I am like the happiest dude in America right now,” Senator Lindsey Graham said the other day, citing Trump’s Syria strike as well as his tough rhetoric against Iran and nuclear-armed North Korea; this winter, Graham and his close ally Senator John McCain were issuing near-daily warnings about Trump’s foreign policy. Now, he says, “we have got a president and a national security team that I’ve been dreaming of for eight years.”

 

Now 73, good-humored and gray, Wolfowitz has returned to the conservative American Enterprise Institute as a scholar since his time in Bush’s Pentagon and a short, rocky tenure as president of the World Bank. When we meet in a studio at AEI’s grandly renovated new headquarters on Massachusetts Avenue, he picks up on the phrase making the rounds in Washington that Trump’s critics take him literally but not seriously, whereas his supporters take him seriously but not literally.

Comforting to see that a notorious war criminal is not only “good humored,” but also a “scholar” at an American think tank after destroying Iraq and creating ISIS.

But hey, that’s how the American Empire rolls.

via http://ift.tt/2pAuLAW Tyler Durden

Ethereum Surges To All Time High As SEC Considers Ether-based ETF

Yesterday holders of bitcoin got an unexpected, if pleasant surprise courtesy of the SEC which announced that two months after deciding against a bitcoin ETF, it would review its decision, suggesting that after several failed attempts, Bitcoin may surge even more soon should the long-awaited Bitcoin-based ETF be ultimately approved. Whether or not it is a good thing for the cryptocurrency in the long-run to get such approval, which would expose bitcoin to the vagaries of volatile retail money flows and even greater volatility, is yet to be determined, but the price of bitcoin liked it, and earlier today it rose to near record highs, rising above $1,300 just shy of all time highs.

 

Then today, in similarly favorable news for holders of Bitcoin’s smaller peer, Ethereum, it was revealed that the SEC had quietly begun the process of considering whether to approve an exchange-traded fund for the cryptocurrency ethereum. Recall that ethereum exploded higher at the end of February when it was revealed that a consortium of venerable corporations including JPM, Intel, Microsoft and many others, had created a blockchain alliance based on the ether technology.

In same ways, whereas bitcoin has been seen as the more venerable, if “renegade” cryptocurrency, ether has developed the reputation of the smaller, better-behaved relative, one which is backed by major banks and corporations, which in the past has distanced itself from bitcoin due to limitations associated with its specific blockchain technology.

While ether and bitcoin are similar, they are also very different. First of all, none of the big Chinese exchanges lists ether for trading (which means it is only a matter of time before they do) sending it into orbit as the traditional Chinese bubble stampede does. Second, the two biggest ether exchanges are Coinbase and Kraken, both regulated.

Ethereum is backed by almost all household brands who have formed an alliance in support of the platform. Microsoft is a big proponent, with ether’s protocol added to Hyperledger, the open-source cross-industry blockchain development effort headed by the Linux Foundation.

Whether that makes an ether-based ETF more likely remains to be seen. What we do know is that the backers of the EtherIndex Ether Trust first filed in July 2016, seeking to launch an ETF backed by a cache of ethers on the NYSE Arca exchange, according to Coindesk. NYSE Arca then filed for a proposed rule change clearing the way for the ETF listing in December, according to a notice published in January.

Then, in a new notice from the SEC, the agency announced that it has begun considering whether to approve the proposed ETF, opening up a comment period for outsiders. This is what the SEC said:

“Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change.”

As Cryptocoinnews adds, “Joseph Quintilian and Gregory DiPrisco have founded EtherIndex which is to act as a trust for an Ethereum ETF with Coinbase acting as a custodian and price based on GDAX while Kraken is to act as back-up, both regulated exchanges. Not much is known about the two, but Quintilian appears to be a Wall Street banker or trader, seemingly very well connected and apparently politically involved. He is a board member of Concord 51, a political action committee that targets young professionals, and, according to their LinkedIn, “not just the young Republican establishment, but also the unengaged.”

The two have also founded Axiom Markets, “a proprietary energy trading firm,” according to their website, and, interestingly, they say “Axiom Markets has melded technology and trading together. Our programmers and traders worked as a team during the development and implementation of our in-house proprietary platform.”

Like bitcoin, an ether-based ETF remains subject to final SEC approval. However, the mere likelihood, has sent the price of ethereum soaring from below $50 which had proven a solid resistance level in the past month, to well above $50 in the past 24 hours. It was last trading at $54.40.

As coindesk adds, the SEC is also seeking comments and feedback on which approach it should take, though notably, a previous comment solicitation went unanswered, according to the agency.

In the past 6 weeks the SEC turned down two bitcoin-based ETFs due to concerns over market surveillance and insufficient regulation. However, with a “credible” consortium backing ethereum, will the SEC be forced to finally concede, especially since ethereum appears to not have made headway into China… yet.

via http://ift.tt/2q7duMF Tyler Durden

Coulter Drops Out of Berkeley Speech, Citing Cowardice Amongst Conservative Groups; Based Stickman and Others Promise to Attend

The great civil war of 2017 was supposed to commence on April 27th, at Berkeley. The lightening rod was going to be Ann Coulter, vehemently hated conservative firebrand by the left, who would’ve induced sheer and utter panic amongst the ANTIFA thugs who are, seemingly, unable to deal with freedom of speech.

Unfortunately, Coulter canceled the speech, blaming conservative sponsors are the reason for her change of heart.

“There will be no speech,” she wrote in an email to Reuters on Wednesday, saying two conservative groups sponsoring her speech were no longer supporting her. “I looked over my shoulder and my allies had joined the other team,” she wrote.

The group accused of acquiescing to ANTIFA demands are the YAF (Young America’s Foundation), who said in a statement issued today that they were afraid of violence purported by the left.

“As of 4:00 p.m. today, Young America’s Foundation will not be moving forward with an event at Berkeley on April 27 due to the lack of assurances for protections from foreseeable violence from unrestrained leftist agitators,” they continued. “Berkeley should be ashamed for creating this hostile atmosphere.”

“Ms. Coulter may still choose to speak in some form on campus, but Young America’s Foundation will not jeopardize the safety of its staff or students,” they concluded. “For information on Ms. Coulter’s plans, please contact her directly.”

This prompted a series of tweets, designed to both shame YAF and Berkeley.

And here is the final kick in YAF’s small balls, Coulter thanking liberals for advocating for the first amendment.

Other conservatards have pledged to show up at Berkeley without Coulter, citing other firebrands who will be attending the rally in the hopes of striking death blows to ANTIFA.

The Based Stickman, aka An American Hero, will be in attendance, so maybe, just maybe, the civil war will commence, as previously scheduled.

Content originally published at iBankCoin.com

via http://ift.tt/2oxIHvi The_Real_Fly

Why We Have A 2nd Amendment: Venezuela Plans To Give Firearms To Loyalists To Purge Growing Resistance

Authored by Daniel Lang via SHTFplan.com,

After enduring shortages of food and medicine for years, as well as a total collapse of their currency, the people of Venezuela have had enough. Last week it was estimated that 2.5 million people marched against the Maduro regime, which had previously tried to strip away the powers of the opposition-led parliament. It’s estimated that as many as 6 million people may have taken to the streets to protest throughout the country.

In the lead-up to the protest, which had been planned for weeks by opposition political parties, President Maduro issued an alarming proclamation that didn’t receive nearly enough press. He promised to expand the nation’s armed militia, and hand out firearms to as many as 400,000 loyalists.

The Bolivarian militias, currently at approximately 100,000, were created by the late Hugo Chavez to assist the armed forces in the defense of his revolution from external and domestic attacks.

 

Speaking to thousands of militia members dressed in beige uniforms gathered in front of the presidential palace, Maduro said that vision remains relevant as Venezuela continues to face “imperialist aggression.”

 

“A gun for every militiaman!” he cried.

If you know your history of communist regimes, you understand what comes next. Maduro’s response to millions of hungry pissed off people, is to arm his die-hard supporters, who will be able to purge the starving masses that dared to cross him. They may not face much resistance, because in 2012 Venezuela banned private firearm ownership.

Venezuela has brought a new gun law into effect which bans the commercial sale of firearms and ammunition.

 

Until now, anyone with a gun permit could buy arms from a private company.

 

Under the new law, only the army, police and certain groups like security companies will be able to buy arms from the state-owned weapons manufacturer and importer.

 

The ban is the latest attempt by the government to improve security and cut crime ahead of elections in October

 

Venezuela saw more than 18,000 murders last year and the capital, Caracas, is thought to be one of the most dangerous cities in Latin America.

Do you see how that works? Maduro’s socialist policies turned that country into a crime-ridden hell hole, (and eventually turned their capital city into the most violent in the world). Instead of abandoning their centrally planned economy, which would bring prosperity to all and lower the crime rate, Maduro took away everyone’s guns. Now that his socialist policies are bringing Venezuela’s population to brink of starvation and revolution, he decides to arm his violent and dimwitted loyalists. He has set up the perfect conditions for a genocidal purge of everyone who opposes him.

I’d say that this would be a fine lesson for any would-be socialists in this country, but they don’t seem eager to learn. Neither did many Venezuelans, who elected these control freaks nearly two decades ago. They could have looked at any socialist experiment from the 20th century, and realized that it always leads to starvation and mass murder. Instead they let themselves be conned by what is now the oldest and most deadly political trick in the book.

via http://ift.tt/2q7wDOG Tyler Durden

California Farmland To Plunge “20% Or More” As Returns Sink To Lowest Level Since 1992

Last August we questioned whether California farmland was overvalued by $70 billion (see our aptly named post: “Is California Farmland Overvalued By $70 Billion?“).  Our reasoning was fairly simple, as we argued such a draconian outcome was the inevitable result of large institutional buyers scooping up 1,000s of acres of Cali farmland and massively overplanting almonds because, at least at the time, it was the hottest crop earning the highest returns…and that’s what NYC hot money likes. 

Unfortunately, chasing short-term returns by massively overplanting a permanent crop with a 25 year useful life and creating a huge supply bubble in the process rarely works out all that well.  Here’s what we said 9 months ago:

But the Midwest is not the only place where farmland has bubbled over.  California farmland has been bubbling up for years now with unplanted farm ground with “decent” access to water currently selling for $20,000 – $30,000 per acre.  Land with mature almonds, California’s cash crop, is more likely to trade at $30,000 – $40,000 per acre.  This bubble, like so many others, has been caused in large part by institutional capital “reaching for yield” in a low interest rate environment…yet another Fed bubble lurking under the surface.

 

The plan was relatively simple, in the absence of attractive fixed income yields, large asset managers (like TIAA mentioned above with $850BN of AUM) decided to purchase hard assets like farmland instead.  Farmland could then be planted with the highest value crop, which just happens to be almonds in California, to drive attractive ROICs on invested capital.  A few simple charts illustrate perfectly how the story played out. 

And, right on cue, almond prices crashed leaving land owners with a ~4% ROIC, down from 16%, on land they likely purchased for north of $35,000 per acre.

Almond P&L

 

And, as we noted at the time, we would be a bit reluctant to underwrite California farmland to a 4% return.  We would be looking for ROICs closer to 8% – 10%, at a bare minimum, which, at current almond prices, implies that acreage needs to come down around 45%-55% from the $35,000 per acre level. 

Almond

 

Now, fast forward just 9 months and indeed it looks as though developed California farmland has already dropped from ~$35,000-$40,000 per acre to ~$25,000 and, at least according to one prominent appraiser in the heart of the Central Valley, we’re just getting started.  As Michael Ming of Alliance Ag Services told the Bakersfield Californian, he sees California farmland shedding another 20% of it’s value in 2017 which would put it squarely at the top end of our previously forecasted range.

A new report on the outlook for Kern County ag land values shows water emerging as a major deciding factor in what land is worth, according to Michael Ming, a broker for Alliance Ag Services LLC.

 

His report shows that, depending on a piece of land’s water source, the value could decline this year by up to 20 percent — or more.

 

Such as almond acreage, which shot into the stratosphere in 2015, selling for between $40,000 and $28,000 an acre and have now settled back to between $28,000 and $20,000 an acre, according to Ming’s report.

Ironically, despite record rain in recent months, the next leg down in California farmland will be driven by a lack of water for farmers.  In addition to most of the record rainfall in California, what farmers refer to as ‘surface water’, being washed out to sea and/or reserved for “environmental” purposes the state is also getting ready to restrict farmers’ access to groundwater as well…which means land in certain areas will basically be un-farmable.

Meanwhile, as the National Council of Real Estate Investment Fiduciaries (NCREIF) pointed out recently, returns on California farmland actually turned negative in 1Q 2017 for the first time in years. 

 

Of course, while California farmland declines are the most pronounced they’re certainly not an anomaly as returns for farmland owners all across the country posted their lowest Q1 returns since 1992. 

 

And, given that large pension funds, like TIAA mentioned above, have been among the largest buyers of farm land, pensioners should brace themselves for the next leg down in the funding levels on their quarterly pension statements.

via http://ift.tt/2oNkRrm Tyler Durden

Tillerson, Mattis, Coats Call North Korea “Urgent National Security Threat”, Prepared To Act

Following President Trump's North Korea briefing, Secretary of State Rex Tillerson, Secretary of Defense James Mattis, and Director of National Intelligence Dan Coats have issued a joint statement making it very clear where America goes next…

Past efforts have failed to halt North Korea's unlawful weapons programs and nuclear and ballistic missile tests. With each provocation, North Korea jeopardizes stability in Northeast Asia and poses a growing threat to our allies and the U.S. homeland.

 

North Korea's pursuit of nuclear weapons is an urgent national security threat and top foreign policy priority. Upon assuming office, President Trump ordered a thorough review of U.S. policy pertaining to the Democratic People's Republic of Korea (DPRK).

 

Today, along with Chainnan of the Joint Chiefs of Staff Gen. Joe Dunford, we briefed members of Congress on the review. The president's approach aims to pressure North Korea into dismantling its nuclear, ballistic missile, and proliferation programs by tightening economic anctions and pursuing diplomatic measures with our allies and regional partners.

 

We are engaging responsible members of the international community to increase pressure on he DPRK in order to convince the regime to de-escalate and return to the path of dialogue. We will maintain our close coordination and cooperation with our allies, especially the Republic of Korea and Japan, as we work together to preserve stability and prosperity in the region.

 

The United States seeks stability and the peaceful denuclearization of the Korean peninsula. We remain open to negotiations towards that goal. However, we remain prepared to defend ourselves and our allies.

Certainly does not leave too much room for any more 'sabre-rattling' from Korea. Having sent a carrier group (or 2 or 3), ported a nuclear Sub, test-fired its nuclear missiles, America appears to have shown its 'stick'…

via http://ift.tt/2oxuOx7 Tyler Durden

This Bubble Finally Burst – Which One’s Next?

Authored by Simon Black via SovereignMan.com,

Like so many other high-flying Silicon Valley startups, Clinkle was supposed to ‘make the world a better place’.

Founded in 2011 by a guy barely out of his teens, the company picked up early buzz after proclaiming they would disrupt mobile payments. Or something.

Silicon Valley venture capital firms were apparently so impressed with the idea that they showered the company with an unprecedented level of cash.

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)

The company went on to burn through just about every penny of its investors’ capital.

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.

This is rapidly becoming a familiar story in Silicon Valley.

For the last 6-7 years, Silicon Valley startups have been able to raise unbelievable amounts of cash.

Yet so many of those companies haven’t managed to turn a profit. Ever.

There’s some of the big names like Uber and AirBnb which are supposedly worth tens of billions of dollars despite having racked up enormous losses.

(Last year ride-sharing company Lyft promised investors that it would cap its losses at ‘only’ $600 million per year. . .)

But there are countless other examples of startups being anointed with absurd valuations and continually replenished with fresh capital even though they keep losing money… and have no plan to ever make money.

Snapchat’s investment prospective summed it up best:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”

It’s as if the more money these startups lost, the more popular they became with investors.

Clearly that was unsustainable.

In business, profit (or even more specifically, “levered free cash flow”) is the most important metric.

No company is born profitable; it takes time for entrepreneurs to create and build a financially sustainable business.

In the meantime, startups sometimes need outside investment capital to keep going.

Early stage investors take a risk that the company’s founders and management will be able to execute on a plan that turns a big idea into profit.

But there’s supposed to be a plan. There’s supposed to be an objective to reach profitability as quickly as possible.

Silicon Valley investment firms ignored this basic principle for years, dumping their investors’ savings down the toilet into loser companies with no hope of profitability.

It was a bubble, plain and simple… and now that bubble seems to have burst.

According to Dow Jones Venture Source, venture capital firms in Silicon Valley pared down their investments in tech startups by 30% in the last several months after reaching peak insanity in late 2015.

Unprofitable, unsustainable companies that used to easily be able to raise capital during the bubble years are now struggling to find new investors.

Many are starting to go out of business. For others that manage to successfully raise more capital, the terms are much more strict and conservative.

It’s a new reality, and one that makes more sense: lower valuations, a push for profitability, less insanity.

It makes me wonder, though– if the startup bubble in Silicon Valley can burst, why shouldn’t the bubble in the larger stock market?

In some respects there’s very little difference between the two.

The average stock is trading at a record high valuation despite tepid performance.

And some of the most popular companies are as financially unsustainable as Clinkle was.

Netflix might be my favorite example.

The company’s most recent earnings report for the period ending March 31, 2017 shows, yet again, negative Free Cash Flow of MINUS $422 million.

Not only is that a record loss, it’s 62% worse than in Q1/2016, and over twice as bad as Q1/2015.

Netflix just keeps losing more and more money.

Remember, “Free Cash Flow” is a MUCH better indication of a company’s financial health than profit because it takes into consideration all the capital they must reinvest back into the business.

In the case of Netflix, management must constantly make new ‘capital investments,’ i.e. acquire more content to deliver to their viewers.

If they don’t keep updating their content library, Netflix will go out of business.

So the company has been steadily accumulating huge losses and burning through cash.

They make up the shortfall by going deeper into debt, which is clearly unsustainable.

Don’t get me wrong– as a consumer, I love Netflix.

But it seems nuts that a company with such an unsustainable financial model could be so popular with investors and worth an all-time high $66 billion.

Something is wrong with this picture.

And these investment fundamentals just don’t seem that different than the insanity from the Silicon Valley startup scene over the last few years.

The Silicon Valley bubble has already burst. Given so many similarities, it seems foolish to bet that the stock market bubble will stay inflated forever.

Do you have a Plan B?

via http://ift.tt/2q7pfmb Tyler Durden

Stocks Stumble As Treasury-Bill Curve Inverts. ‘Animal Spirits’ Slump

So to sum up – US testfires a Nuke, Govt Shutdown looms, Trump Tax plan is a wishlist with no details, Canadian mortage lenders collapse, and animal spirits tumble – stocks close unchanged… so we thought this would help…

 

Bonds and Bullion were bid after the Trump Tax plan was unveiled and banks and stocks sank…

As Citi noted, while the market isn't jumping around on this but there is a bid in US fixed income, taking USDJPY down towards 111.00. All in all, a classic buy the rumor, sell the news on an underdelivered (but fairly presented as such) "big announcement" from the Trump Administration.

Trannies fell for the second day in a row, but The Dow, S&P, and Nasdaq all desperately clung to unch amid late day selling…

 

Stocks still positive post-French-election…

 

But Small Caps ripped to new record highs… because fun-durr-mentals…

 

We note that there was a desperate VIX crush after stocks began to sink following Trump's Tax Plan – have to keep the smoke-and-mirrors dream alive… Despite two good runs at trying to break 2,400, they failed…

 

Of course all the headlines were surrounding the wishlist of tax Trump's tax reform plan but in the meantime, Canada's mortgage lenders collapsed…

 

The Peso and The Loonie tumbled on chatter of a NAFTA withdrawal notice executive order…

 

Government Shutdown concerns grew notably once again (despite hope for a stopgap funding bill) with the short-dated curve inverting notably…

 

'Animal Spirits' have tumbled to 2-month lows…

 

One has to wonder at the market's confidence when 5Y Treasury yields tumble at the announcement of a "pro-growth" tax reform plan…

 

In fact the entire Treasury cirve flattened and fell after the tax plan…

 

But hey Twitter ripped 10% on the biggest revenue drop YoY since the IPO…

 

 

The Dollar ripped higher to run stops from Trump's "strong dollar" comment bounce but the Tax Plan today sparked selling…

 

USDJPY was today's big mover…

 

The machines tried 3 times to juice stocks (via VIX) but each time it fell back to USDJPY's reality…

 

On the heels of a bigger than expected crude draw, WTI kneejerked higher but RBOB pumped and dumped as inventories rose…

 

Gold ansd Silver were bid (as the dollar sank) after Trump unveiled his wishlist tax plan…

 

Finally we thought this was interesting – stock and bond performance since the S&P top in October 2007…

via http://ift.tt/2oN6VOn Tyler Durden