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2019-04-15 08:55 by Karl Denninger
in Market Musings , 218 references Ignore this thread
The Grand Fraud of 2019
[Comments enabled]

It's baaaaack.

If I stand up a small business and wish to sell shares to unaffiliated people they have to be what is known as "accredited investors."  In other words I can't just sell stock privately to anyone and the reason this was put in place is to protect the common public from snake-oil salesmen and frauds.

We can argue whether the way this was done is good or bad, but if you can manage to file an S-1 you can make fanciful, even ridiculous claims and sell stock to anyone who wants to buy -- even if it's with their last $50.

In 1998 and 1999 there were a spate of IPOs that, between them, made utterly farcical claims about "total addressable markets"; effectively claiming more in GDP than existed.  Obviously that was not going to happen and didn't; most of those firms literally do not exist today and those who bought the stocks lost, on an effective basis, all of their money.

Uber is now proposing the same sort of insanity.

I won't quote you the whole S-1 or the pieces of it that, between them, are somewhere beyond comic-book dreams.  It's astonishing that a company would come to market with a mid-double-digit operational deficit percentage over the space of years, have no operational plan they can put before you that will make that an operational surplus (this is called a "profit", by the way), that the "raising of capital" will in part allow some who threw their fire into that cash furnace to get it back out and replace it with yours and that it will be quite-literally legal for the village idiot to put as much of their money into the furnace as they wish.

Every penny of it is likely to vanish.

They say that markets go through periods of "extreme euphoria" and that we're nowhere near that point yet -- therefore, according to CNBS and the rest, it's "safe" to put your money in.

Uh huh.

When companies come to market who have never made a profit, have no concrete plan to make a profit, are providing a service people want but can't sell it at the price that would make it profitable (otherwise they would be; why would you leave a huge amount of money on the table if you could keep it?) then we're not on the edge of "being there", we're not "in the middle" of euphoria -- we're positively stoned on it to the point of torpor.

Enjoy the crash.

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Asimov
Posts: 110974
Incept: 2007-08-26

East Tennessee Eastern Time
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How is this *NOT* a pyramid scheme?

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Bodhi
Posts: 1066
Incept: 2008-02-23

Georgia
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It looks like a pyramid scheme to me. Uber lost just over $3 billion in 2018, which means they've been hemorrhaging private investor money. The private investors are getting surly and want their money back plus a little something for the effort from this IPO. What a ****show.
Cobra2411
Posts: 12132
Incept: 2007-06-26
A True American Patriot!
Philly P.a.
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I was a little late to the party in 98-99. I was putting a VC deal together for a marketing platform and remember going to all the VC get together and seeing the business plans with no break even point and no profitability. The plan I was working on was month to month profitable in about 2 years. I saw some plans forecast out 5-8 years and a constant burn. I was probably a bit optimistic but I could not fathom how people invested millions into something that was simply going to burn money till exhaustion forever...

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Government: A device that allows you to get blind ass drunk and your children die from alcohol poisoning.
Mangymutt
Posts: 960
Incept: 2015-05-03

Vancouver WA
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Ok-Ok-Ok - This Ticker has planted the seed for The Most Brilliant Plan of 2019

Mine BitCoin - Take untold profits from BitCoin and buy Tesla's - Start Driving Tesla Fleet for Uber, but also pick up and deliver GrubHub at the same time, use the windfall from Uber and GrubHub delieveries to purchase their stalks. Buy enuff stalk to become CEO of Uber and vote myself a raise paid entirely in Bitcoin, and live life on easy street.

Now some of you are probably thinking "Fleet" of Tesla's you can only drive one at a time. WRONG - They do have autopilot, so I am going to stick an Alexa on the front seat. But here is the Ultra-Ingenious part, I have been told BitCoin mining can use a lot of electricity. We all know Tesla's are 109.73% green and some shopping locations provide FREE electricity and premium parking for electric cars. So while I have my Tesla fleet plugged into public charging stations, I will not only be saving the environment but mining for BitCoin, so I can connect people to their destination through Uber, but also people to their food through GrubHub all while saving the world of CO2.

Karl, had you not written this Ticker, I would not have know this niche needed to be filled and I will be thanking you specifically when I receive the Failing New York Times "2019 Sentinel Being of the Year"
Rollformer
Posts: 426
Incept: 2013-02-13

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WeWork will mark the top. That is my prediction.
Amgrace
Posts: 2326
Incept: 2008-02-15

New Castle, PA 16101
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I'm wondering if Uber even gets IPO'd. If Lyft (down again today) keeps dropping like it has, the Uber deal gets pulled .... poof.

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American politics as a system has ceased to function, because the system has gone from representing people to representing money. And that is something that can only go well as long as the people have at least some of that money. - Automatic Earth 3/17/2010
Ckaminski
Posts: 5258
Incept: 2011-04-08


Online
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I don't understand how they couldn't be making money. I tried lift in Boston a few weekends ago for our PAX visit. I'd used Uber a lot as a ride-on passenger on someone elses account in SF years ago, and never really got a comparison of costs.

But I did get some interesting data on Taxi vs Lyft during my Pax weekend. $30 one way for 4 for a 5 mile trip through Boston to Cambridge in a Taxi, that seriously was cramped, smelled like 7 day old moldy socks, and was pretty dirty.

The same trip in a Lyft XL the next day was $20, minivan, plenty of room for 6, clean, smelled OK, the driver offered Bluetooth for our audio enjoyment and was a decent conversationalist. I don't know what Ubers prices were, I refuse to use them based on their sexual harassment scandals, but I was interested in getting some first hand data on some of these rides.

10/10 would do lyft again instead of a taxi. Based on the prices I paid, Lyft definitely has some price room to move to beat out taxis, and based on the quality of the rides, I'd do it again.

*shrug*
Phdude
Posts: 153
Incept: 2009-05-26

NJ
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Uber WILL get IPOd. Too much bankster & assorted parasite money in that turd. They want it back, with interest of course.

The bezzle needs to keep going and needs to provide the illusion of normalcy & success (and one could claim that it is a huge success to have a company with a 12B lifetime loss that will never be profitable be IPOd). The faith in 'tech' (what technology exactly? it's a cab-hailing application, not project Mercury) must continue.

Flaps10
Posts: 7020
Incept: 2008-10-17

PNW
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Considering the people who are going to throw every last dime into the furnace, while forcing me out of my own car - I say "baby needs a new pair of shoes!"
Aquapura
Posts: 849
Incept: 2012-04-19

South of Canada
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In all seriousness, how does Uber not make money? Their entire business model pushes the majority of the costs off onto their independent contractors. All they have to do is maintain a mobile app and have an accounting staff to take their skim and pay out the rest in wages. Are they pulling a Bezos and under pricing just to put the cabbies out of business???

I know I'm over simplifying but this isn't web 1.0 where there were no customers. I know of several major corporations that require employees use Uber for work travel. They should at least be break even by now.
Rickyd
Posts: 804
Incept: 2009-07-07

Ontario, Canada
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CNBC interview with an Uber Investor...

www.youtube.com/watch?v=cXDrDnOlBls

...it's only 2.5 minutes long but it gives you insight into this investor's thoughts.

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"That day is coming again, for the same reason -- willful and intentional blindness toward a grossly over-extended economic picture fueled by debt accumulation that cannot permanently continue as a simple function of arithmetic."

Karl Denninger
Quik49
Posts: 5657
Incept: 2007-12-11

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"salaries"?

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Long Vaseline....

Gauntlet33
Posts: 102
Incept: 2009-03-30

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I remember a few years ago when I first heard of Uber and heard it was a taxi service and its CEO was worth billions of dollars...I thought WTF? That's the insane world we're living in...all hype, hope and promises of success and I agree that it will fail miserably in due time.
Lobo
Posts: 593
Incept: 2013-12-25

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Tickerguy wrote..
Enjoy the crash.

At this point I have little hope of avoiding it and the longer this **** goes on, the more I pray for an asteroid.

Mangymutt wrote..
They do have autopilot, so I am going to stick an Alexa on the front seat.

Heh. Put one of those blow-up sex dolls in the driver's seat and stick the Alexa... Anyway, then while your Tesla is charging, you can also rent out the driver.

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Village Idiot
Doctor.d
Posts: 28
Incept: 2011-06-19

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I don't understand why this **** isn't considered CRIMINAL FRAUD! The people running the Pension Funds and Mutual Funds that buy these garbage IPO's KNOW *******N WELL they are worthless frauds, but they often get kickbacks for helping insiders cash out, and also know when to short this garbage and make disgusting amounts of wealth (personally) when the garbage collapses! It doesn't matter that they are violating their fiduciary duties, because the last 2 bubbles that popped, no one ever paid for it, and no one cares!

This next time down, this **** will be over for 2 generations - that is - if we even manage to survive the next 10 to 20 years, which is quite frankly --- DOUBTFUL!

Karl - the numbers on your header are FAR TOO OPTIMISTIC! All of it is going to ****ing ZERO!

"MARK IT ZERO, DUDE!" (John Goodman in The Big Lebowski)
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