It's the Economy Stupid

[simplicitus]

Gonna load up on the WeWork IPO. Yolo!

https://twitter.com/ShiraOvide/status/1161601877517246464

[hokie]

brb, googling “how to short an IPO”

[boredsocial]

What’s the matter you don’t want to buy a mediocre REIT (without the tax advantages) for the price of a tech company?

[hobbes9324]

I’m trying to figure out just how Uber implodes - they (as far as I can tell) have no credible way to make money, which they now need to do at some point because they’re a listed company. And every bright idea (Ubereats etc.) is the same goddam thing - a stone cold money pit. So are they going to go under slowly, or all at once?

MM MD

[boredsocial]

I can tell you that they wasted a ton of money trying to compete directly with me. Freight brokerage is a way more competitive business than the regulated taxi industry so I have no idea why they thought it was a good idea. Not exaggerating my office does 1/25 of their volume (it’s literally just me) and I can assure you I did not spend millions of dollars (even with the most exaggerated sweat equity valuation) getting to that point. I’m also infinitely more profitable than them since I actually make money lol.

[spidercrab]

@boredsocial

Those profit margins were achieved by slashing capex to the bone for starters. This makes them very vulnerable to having to raise that spending to remain viable down the road.

Yeah, I don’t think this is accurate at all. I believe the biggest change in margins is in the tech sector, and that’s because you’ve got economies of scale, where (unlike with producers of tangible goods) you can generate massive increases in revenue without correspondingly massive increases in expenses. What makes you think these margins come from slashing capex?

@boredsocial

They are also holding a lot of debt at very low rates, so a change in borrowing costs would hit bottom lines very hard.

Maybe, but life is more complicated, in that inflation has been historically low and has limited firms’ ability to raise prices. It’s not clear to me that an increase in inflation would necessarily have a materially negative effect on net profit margins. To be clear, I do believe that an increase in inflation would be bad for asset prices, but that’s because of the “lolstupid” argument that increases in the discount rate lead to decreases in stock prices.

@boredsocial

And then there’s the threat of small operators coming in and forcing them to compete on price. As such a small operator I can confidently say that small well run firms can absolutely waffle crush big firms on price AND service in many areas already, and technology is expanding the number of areas this is true as we speak. We are living in a golden age for high level freelancers right now, and that trend really just started.

Why does this mean that profit margins are abnormally high?

@anon38180840

The Fed rate is 2.25%, I think it should have been at 4-5% the last couple of years.

The danger to having a fed rate that’s too low is that the economy will run to fast and generate a lot of inflation. For 10 years now, the Fed has consistently overestimated inflation and, as a consequence, has been too hawkish in their monetary policy. Rates should have been lower for the last 10 years and, if anything, they should be lower rather than higher now.

[bobman0330]

@hobbes9324

I’m trying to figure out just how Uber implodes - they (as far as I can tell) have no credible way to make money, which they now need to do at some point because they’re a listed company. And every bright idea (Ubereats etc.) is the same goddam thing - a stone cold money pit. So are they going to go under slowly, or all at once?

MM MD

Don’t they just raise prices to the point where they stop losing money? It’s not exactly rocket science.

[WichitaDM]

At that point no one uses it because it is more expensive than taxis.

[jerry]

Or one of their several other app based competitors

[MasterofthePwn]

Uber gets ~25% of every ride primarily for providing a massively scalable app connecting drivers and riders. So they don’t even need the raise prices to be profitable, they just need to make the call to stop flushing money down the toilet on non-sense. But if stopped doing the nonsense, they couldn’t sell investors on zomg unlimited growth potential!!!

[bobman0330]

@MasterofthePwn

Uber gets ~25% of every ride primarily for providing a massively scalable app connecting drivers and riders. So they don’t even need the raise prices to be profitable, they just need to make the call to stop flushing money down the toilet on non-sense. But if stopped doing the nonsense, they couldn’t sell investors on zomg unlimited growth potential!!!

It seems quite obvious that the point of Uber’s strategy is to invest a lot of money to build a market position that will be profitable after self-driving is practical and they can cut the drivers out of the picture. If they choose not to do that any more, they just sit back and collect a bunch of operating profit off of their IP (but not enough to make them a $100 billion company).

[Riverman]

Lol we work. This might be my first ever short.

https://www.bloomberg.com/news/articles/2019-08-14/wework-gave-founder-loans-as-it-paid-him-rent-ipo-filing-shows

[WichitaDM]

Wow what a brilliant take.

[anon38180840]

Thanks for signing up to make that astute point. Welcome to our community!

[joltinjake]

I guess it’s uncouth to root for the economy to fail, but that happening before 2020 is really the only way I can envision progress being made in the next 10+ years. We need another blue wave to have a legitimate chance of taking the Senate. Without that, it doesn’t matter how great the next President is. Elizabeth Warren isn’t going to accomplish anything of note as long as Republicans control the Senate.

But a weak opponent combined with a bad economy? Then maybe we’re talking an ass kicking big enough to move the needle.

[Riverman]

Nothing meaningful will ever happen unless and until Democrats are willing to attack the fundamental structure of US politics.

• DC, PR statehood
• Nuke filibuster
• Pack SCOTUS
• Punish poor red states that vote for “limited government” i.e. racism while chugging from the blue state teat

[boredsocial]

Actually I agree with this fully. The norms are dead and we are at war politically. Time to accept that and fight fire with fire.

[SensiblePerson]

@Riverman

Nothing meaningful will ever happen unless and until Democrats are willing to attack the fundamental structure of US politics.

All that and also get rid of the electoral college.

[jmakin]

What i have been saying for a while

[tabbaker]

Or end capitalism