Here’s What I’m Worried About with the Everything Bubble

How cash-burn machines power the real economy, and what happens to the economy when investors refuse to have more of their cash burned.

This is the transcript from my podcast last SundayTHE WOLF STREET REPORT:

I’m not going to call it “tech,” because most of the startups in that so-called tech space aren’t tech companies. They’re companies in mundane businesses. And many of these companies aren’t startups anymore but mature companies that have been in business for over a decade and now have tens of thousands of employees. And then there is the entire shale-oil and gas space that has turned the US into the largest oil and gas producer in the world.

They all share two things in common:

  • One, they’re fabulously efficient, finely tuned, and endlessly perfected cash-burn machines.
  • And two, investors in these companies count on new cash from new investors to bail out and remunerate the existing investors.

This scheme is a fundamental part of the Everything Bubble, and there is a huge amount of money involved, and it has a big impact on the real economy in cities where this phenomenon has boomed, and everyone loves it, until these hoped-for new investors start seeing the scheme as what it really is, and they’re suddenly reluctant to get cleaned out, and they refuse to bail out and remunerate existing investors. And suddenly the money runs out. Then what?

Calling these companies “tech” is a misnomer, designed to create hype about them and drive up their “valuations.” They engage in mundane activities such as leasing office space, running taxi operations, doing meal delivery, producing and selling fake-meat hamburgers and hot dogs, providing banking and brokerage services, providing real estate services, and renting personal transportation equipment, such as e-bikes and e-scooters.

And let’s just put this out there right now: e-scooters appeared in public for the first time in the late 1800s, along with electric cars and trucks.

Then there is the endless series of new social media platforms, in addition to the old social media platforms of Facebook, Twitter, WhatsApp, Instagram, and the like, where people post photos, videos, promos, and messages about whatever.

That’s the “tech” sphere mostly today.

There are some tech startups in that group, however. And that technology is about spying on Americans and others and datamining their personal events, purchases, and thoughts to be used by advertisers, government intelligence agencies, law enforcement agencies, political parties and candidates running for office, and whoever is willing to pay for it.

And there is some real tech work going on in the automation scene, which includes self-driving vehicles, but most of this work isn’t done by startups these days – though some of it is – but by big companies such as Google, big chipmakers such as Nvidia, and just about all global automakers.

And there is a slew of big publicly-traded companies that have stopped being startups years ago, that are burning huge amounts of cash to this day, and that need to constantly get even more cash from investors to have more fuel to burn. This includes Tesla, which succeeded in extracting another $2.7 billion in cash in early May from investors. Tesla duly rushed to burn this cash. And it includes Netflix, which extracted another $2.2 billion in April. From day one, these companies – just Netflix and Tesla – have burned tens of billions of dollars in cash and continue to do so, though they’re mature companies.

And it includes Uber which received another $8 billion from investors during its IPO in May, which it is now busy burning up in its cash-burn machine.

Don’t even get me started about the entire shale oil-and-gas space – though there is some real technology involved.

That entire space has burned a mountain of cash. Many of these shale oil companies are privately owned, including by private equity firms, and it’s hard to get cash-flow data on them. But for example, just to get a feel for the magnitude, by sorting through 29 publicly traded shale oil companies, the Institute for Energy Economics and Financial Analysis found that between 2010 through 2018, $181 billion in cash was burned. In 2019, they’re burning an additional pile of cash because oil prices have plunged again. And shale drilling started on a large scale before 2010. Plus, there’s the cash burned by the privately held companies. So, the total cash burned is likely in the neighborhood of several hundred billion bucks.

These companies and industries are “disruptive.” They claim that they change, and some of them actually do change, the way things used to be done.

But they have not figured out how to have a self-sustaining business model, or how to actually make money doing it. It’s easy to quote-unquote “disrupt” an industry if you can lose billions of dollars a year, if you keep getting funded by new investors, while everyone else in this industry would go bankrupt and disappear if they used a similar business model.

The only reason these companies have had such growth is because investors didn’t care about the business model, profits, and positive cash flows.

All these investors cared about is the likelihood that the cash-burning company would be able to raise new money from new investors, such as by issuing new bonds or new shares, so that it could pay off and remunerate the existing investors. And existing stockholders counted on this new money to keep the company afloat and share prices sky-high.

Some companies, such as WeWork, are now running into trouble with this scheme. And the unicorns that recently sold shares to the public via IPOs have seen their share prices plunge. So there are signs that the appetite for these schemes is no longer as rampant as it was just last year.

But other companies are still able to raise new money from new investors to pay off and remunerate existing investors and keep their share prices high that way, and these new investors are still lining up to fund much of it.

This scheme is a key feature of the Everything Bubble. And it has had a large impact on the real economy.

When a company has a negative cash flow, which these companies all do, it means that they spend more investor money in the real economy than they take out. This acts like a massive stimulus of the local economy and even of the broader economy.

They’re paying wages, and these employees spend those wages on rent or house payments, on cars, electronics, food, craft beer, shoes, and they’re becoming bank customers and buy insurance and go to restaurants and pay taxes at every twist and turn. Few of those employees end up saving much. Most of them spend most of their wages, and this money goes to other companies and their employees, and it gets recycled over and over again, allowing for more hiring and more wages and more consumption to percolate through the economy.

Some of this money that is circulating comes from revenues, and is thereby extracted from the economy to be recycled. But the rest of the money – the amount that companies spend that exceeds their revenues, so the negative cash flow – comes from investors. And this is pure stimulus.

This is how the $10 billion that Softbank sank into WeWork was and will be recycled via salaries and office leases and purchases, and via local taxes, and purchases of furniture and decorations and rehabbing offices whereby the money was recycled by construction crews and electricians and flooring suppliers. Softbank’s money was routed via WeWork into the various local economies where WeWork is active. And it helped pump up commercial real estate prices and office rents along the way.

The shale oil-and-gas sector spends a lot of the negative cash flow in the oil patch, but also the locations where the equipment they buy is manufactured, such as sophisticated computer equipment, the latest drilling rigs, big generators, high-pressure pumps, and the like.

So an oil driller in Texas will transfer some investor money to manufacturers in distant cities. And the employees at these manufacturing plants buy trucks and boats and used cars, and they buy houses, and all kinds of stuff, and all of those hundreds of billions of dollars that investors plowed into the industry got transferred and recycled endlessly.

This is the multiplier effect of investors plowing their cash into money-losing negative cash-flow operations.

So what happens when investors figure out that this money is gone, and that any new money they might give these companies will also be gone?

What happens when these investors realize that the ever-larger amounts of new money that must come in behind them to bail them out and remunerate them might not come in behind them?

What happens if these investors fear that they might get stuck with their bonds and equity stakes, and might become the end-users of them because there is no one coming in behind them? And that they have a good chance of getting crushed in the process?

It’s all a mind-game.

Investors are already contemplating this scenario. It has a chilling effect.

Don’t get me wrong: there is still lots of money out there chasing down these companies, and WeWork might yet get bailed out albeit at a far lower valuation than in years. Softbank and JPMorgan are both working on ways to salvage their existing investments and loans in WeWork, and the only way they can do that is by throwing good money after bad. Both of them are now trying to use other people’s money for that purpose.

So, it’s not yet the sudden end of the Everything Bubble. This is a process and takes time. But as this process moves forward, and as new investors are becoming more reluctant to bail out and remunerate old investors, those billions of dollars in cash that investors feed into these cash-burn machines will slow.

In turn, these companies will cut their spending, including spending on advertisement and promos on social media sites – many of them also startups. And they will cut their employees in waves, such as Uber and WeWork and others are already doing.

And eventually many will shut down when they run out of money, leaving investors high and dry. That investor-money that got endlessly recycled in the economy, won’t be there to be recycled. The employees who’d recycled this investor money by spending most of their wages, well, they’ll be out there looking for jobs and cutting their spending to the bone, or moving back in with mom and dad a thousand miles away.

The restaurant and bar scene will go through a shakeout. Suddenly qualified kitchen staff will be easier to hire, but then no one is hiring. Landlords will be turning over properties to lenders. Commercial Mortgage Backed Securities will teach investors some valuable lessons. And so on.

Each step triggers the opposite of the multiplier effect derived from investor-funded cash-flow-negative companies. And this is why the dotcom bust was so rough on San Francisco, Silicon Valley, and other hotspots of the startup scene.

As the current startup-unicorn-bubble and shale-bubble unwinds, it will have a sobering effect on the real economy in those hotspots, and to a lesser extent on other parts of the economy. That kind of investor craziness we have seen in recent years was a lot of fun all around, but unwinding it is not fun.

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  136 comments for “Here’s What I’m Worried About with the Everything Bubble

  1. Kent says:

    So why aren’t these investors putting there money into manufacturing highly-profitable and valuable new inventions?

    • RD Blakeslee says:

      Finding these manufacturers in their nascency is what venture capitalists do. Most investors, corporate or individual, don’t invest that way.

    • timbers says:

      Because that would involve work and risk, and why would anyone do work and risk that when the Fed has made it possible to get “investment” returns without work/risk by just thoughtlessly buying anything called an “investment” due to it’s QE and interest suppression.

      You don’t need to think or take risk to make money in today’s “investments” under QE/rate suppression. You just need to “buy buy buy buy” as one TV person put it.

      • sunny129 says:

        Why do ‘industrial engineering’ when ‘financial’ engineering has been so profitable under Fed’s money policies!

        • JZ says:

          Do you want to take the FED ride or do you want to end the FED?
          End the FED will cost you time and effort. Take the ride will get you profit. Simple choice, right? Corruption is like gravity, all you need is a little push.

      • Cas127 says:


        Right on – you hit on the one point not really focused on in the otherwise excellent article – how ZIRP (used to politically avoid addressing China’s rise) has herded yieid starved savers into financial kill boxes.

    • whosOnFirst says:

      What & where is the good investment? Probably CD’s, but that’s now 1.8% for 1yr

      Problem now is rock solid stocks everyday are dying, like 3M, or Bayer, you name it, your favorite high-div 30+ year darling could just go belly up some morning, there is nothing ‘safe’ it doesn’t exist

      So lots of people dabble in the Unicorns, hoping if they buy ten one will go to the moon. Actually not wise of course, but getting 1.8% from a CD ain’t wise either, I know that smart rich people are buying cheap timberland/farm’s to park their cash in the coming ‘takings’ given the pendulum is swinging rePug2DEM

      the fact that UNICORN’s are still alive and kicking means that we’re still in the early year of 1929, the fact that the economy keeps getting worse but the FED will always throw fresh paper into the fire means the stock-market can only feed the unicorn livestock

      what’s a mother to do? CD? GOLD? Nothing, or a little of all, even real-estate has only one direction now, and certainly high-div shale is DOA; Well there is emerging dev country’s, that’s where smart traders seem to be ( Dalio )

  2. Iamafan says:

    As long as the Fed does not buy their private stocks and bonds, or becomes their lender of last resort, then who cares if they fail. I believe it’s called capitalism and a free market economy. One is free to succeed or fail.

    • HollywoodDog says:

      Wolf just outlined it above: the eventual failure of a large number of these unsustainable firms results in systemic economic collapse. Most of us are dependent on the overall health of the economy in some way. That’s why we aren’t a “pure free market economy” but a mixed economy that includes capitalist opportunities along with state regulation and a safety net.

      • Iamafan says:

        The Fed has convinced me that their supervised banks are LIQUID.
        FDIC is there to help. WeWorks is failing. JPM had lent a lot. If WeWorks fails, is JPM gonna run to the Fed for help? Please explain how.

        • Fed makes reserves available to banks which monetize them for cash, removing the need to do business in the real world, they accept the socialist GSE designation. Investors think banks make profits like its 2000, on borrowed money, and stocks always go up. Corporate high yield is in better shape than zero real rate Treasuries, so go figure. Treasuries are kryptonite, which is why you were paying 10% to monetize them. Borrowing Repo and buying stocks gives the banks exposure to corporate debt, and WeWorks. Their debt is preferable to the debt of USG.

      • DawnsEarlyLight says:

        More like an explosion proof bulkhead, than a safety net.

      • Frederick says:

        We aren’t a pure free market economy says Dog What an understatement that is

      • sunny129 says:

        ‘That’s why we aren’t a “pure free market economy” but a mixed economy’

        The so called, good ole American (market driven) free market capitalism died in the March of ’09!

        What we have are ‘crony’ capitalism mixed with GIG Economy!

        • alex in San Jose AKA Digital Detroit says:

          Socialism for the rich and capitalism red in tooth and claw for the masses.

        • GolferDave says:

          I think its more accurate to say we live under late state monopoly capitalism. Multinational cartels rule international trade. Monopolies and large multi location corporations capture markets at home at the expense of Main Street. Local and regional ownership groups have been supplanted by corporate headquarters and local (low paid) managers. The “financial crisis” served to consolidate the banking industry into a handful of TBTF institutions…profits have been privatized… losses socialized.

      • PTBarnum says:

        Eventually it results in systemic collapse of the Unicorns like dominoes, more worrying is the slow-death of A-team these days like 3M, Bayer, Boeing, … CAT, GE, …

        It’s almost like the Unicorns are there as ‘entertainment’ to keep people amused, and to fulfill fantasy’s; the FED will FED until it can’t

    • Javert Chip says:


      I’m in basic agreement with “…who cares if they fail…it’s called capitalism…”; however, the unique segment of large, venture-funded, cash burning machines frequently cause massive collateral damage as they stumble to the trash heap.

      Perfect example is AirBNB: a corporation that still has not made a GAAP profit (claims EBTIDA profitability, which is like saying “we make money if you ignore all our expenses”) that has undoubtedly damaged many neighborhoods and cities (Barcelona). Another one, Uber, has decimated asset value for lots of cab medallion owners.

      A democratic society will only tolerate so much flagrant abuse by California rich guys on Sandhill Avenue subsidizing a seemingly never-ending search for a successful business model at the expense of destroying value for hundreds (thousands) of essentially defenseless people. If you can’t produce a profitable business model quickly & cleanly (3-5 years), you should probably quit trying.

      I’m an old retired CFO and pretty vehement capitalist, but at some point, watching billion-dollar investment funds endlessly brutalize minimum wage workers without demonstrating a profitable business model seems to cross over into gangster capitalism, which is the justification for regulation.

      Very few unicorn pass the smell test as “tech” companies; most are simply billionaire-subsidized low-margin pedestrian business (ride share, real estate, food delivery…) in search of a monopoly.

      • Iamafan says:

        Whatever government collateral they hold can be purchased by the Fed. Who knows who really holds the securities that all the (P)OMO operations are buying. This would be similar to China selling all the Treasuries (the Fed just buys them).

        There is only $16 trillion MARKETABLE Treasuries out there. The Fed’s basement can fit that if needed.
        The rest of their private collateral can go to hell like 07-08. We have been here before, right? Don’t cry for me, “whatever” funds.

        I think it’s time for a reboot. Anything not bolted to the Treasury can take their chance. Let private risk be private risk.

      • MrILO says:

        Standing ovation

      • JZ says:

        @Iamafan Market is too important to be left in the hands of investers. We are talking about social unrest here.

        I hear VC women talking on NPR the other day. She said, before soft banks vision fund, VC fund is like 3 billion fund. There was a Dog Walking Uber asked her for 10million funding. She refused. Vision fund came in with > 100 Billion in size, have the Dog Walking Uber 300million to start up. The point? Hire all the engineers from your competitors, sell service at zero, smoke your competitors.
        Not because they create new tech, NOT because they will make money. Do what Amazon did, burn and smoke competitors at low/zero/negative profit. Then, use your market share growth to IPO.
        What happened next? Other VCs gave another dog walker uber competitor 160 million to compete.
        M f***ers give silicon valley a BAD name.

        • WSKJ says:

          more re Amazon:

          Amazon=convenience; and so far, as far as I am aware, good security with personal info (they have been reliable caretakers of my credit card number and I am not aware of major security breaches at Amazon).

          HOWEVER, as commented above, they are apparently driving out of business other retailers, quality retailers who have built businesses on the old-time model (make an honest profit).

          In addition, here’s what bothers me:

          Amazon has, in the recent past, paid poverty-level wages to some of their warehouse workers. (I haven’t recently checked; this may still be the case.)

          I find this deeply wrong: Jeff Bezos has been amassing billions while paying poverty-level wages to some of his employees.

          Yes, it looks like gangster capitalism to me.

        • Wisoot says:

          JZ re social unrest, so you would personally wear a plaster continuously with the risks it carries of festering, further infection or tear rather than go get the wound cleaned out and have a good doc put some solid stitches in for a clean but significant scar. Modernity suggests most given the chance would get stitches. The social unrest is short lived, time moves on, scars heal, immune system stands down. There is an east west integration process versus a sovereign cooperation agenda being played out by 1% with 99% exposure to becoming collateral damage. If that isnt unrest I dont know what is.

      • GP says:

        @Javert Chip

        Why do you call Airbnb as exploiting minimum wage workers?

        It has created a streamlined market place where property owners can easily list their properties and travelers can easily find a place to stay (YMMV with your particular personal experience).

        Uber hasn’t changed life of drivers worse – taxi drivers weren’t any better off before ride-sharing. Taxi medallion prices have surely come down – medallions were a stupid anti-market red-tape move to begin with.

        When a big tree falls there will be big damage, but not necessarily systemic.

        Smart investors will invest wisely with enough exit doors. Fools end up holding the bag – that has happened over centuries.

        At the risk of putting words in your mouth, is your suggestion to not let companies grow too big?

        • nhz says:

          Airbnb is exploiting society in an extremely negative way – in Europe, but I doubt it is much different elsewhere. A select group of homeowners makes record profits (in many EU countries completely untaxed), the neighborhood enjoys all the downside like drunk and stoned tourists, rents are surging because why rent a property when you can get far more profit using Airbnb (and yes, some of the neighborhood probably likes how this drives up home prices even further). They also drive some of the hotels and official B&B’s out of business because those can’t compete with unregulated, untaxed companies. Once the damage is done or the local government wakes up (usually they don’t because they are easy to bribe by those who profit) the guys in Silicon Valley take the loot and move on to other pastures.

          And unfortunately Airbnb is just one of many Silly CON Valley companies that are causing destruction all over the world.

        • char says:

          Taxi drivers earned more before Uber. And that is in nominal income not inflation adjusted.

          Taxi medallions are a effective way to manage taxi’s. They create an environment in which cabby’s can earn a wage and keeps them honest because no 3 min. $500 trip isn’t worth loosing the medallion

        • Javert Chip says:

          What class of hospitality worker do you think is being put out of work by AirBNB? The tooth Fairy? How clueless are you?

          After 10+ years of world-wide roll-out & “venture capital” subsidy, this supposedly world-beating concept still can’t make a GAAP profit (EBTIDA doesn’t count).

          This isn’t a tech company, it’s an interesting competitor to high-priced hotels, etc. I get that (I’ve even used AirBNB).

          The strikes me as an example of a business model in search of a monopoly. AirBNB may make incremental income here & there for selected owners of desirable property, but it sure as hell isn’t making a profit for AirBNB.

        • GP says:

          @Char, @nhz,

          Taxi medallions capture the evolution of red tape (intent, consequence, victims) beautifully.
          Bit of background on medallions. Long time ago, enterprising people started taxi business – benefiting people who no longer had to purchase a car to get somewhere in a car. Other people saw the opportunity and started own taxi business.
          Some iamverysmart city council members had this great thought – if we don’t restrict the number of taxis in this city, the fares will drop dramatically and taxi drivers can’t earn a decent living. So with the help and pressure of taxi lobby, put a limit on number of taxis in a city. 
          There would be limited number of medallions which are distributed based on certain conditions (guess who wrote it). No one couldn’t drive a taxi without a medallion. This resulted in artificial scarcity driving up prices of medallions.
          It wasn’t the drivers who usually that owned these medallions – mostly speculators. Taxi drivers had to pay rental fee to the medallion owner to be able to drive. Drivers weren’t exactly raking in money.
          Now for consumers – unless we put on rose colored glasses, we all remember how long it would take for a taxi to show up, condition of the cab and the fares.
          So a ruling that was passed with the intent of helping taxi drivers, ultimately ended up hurting the drivers, hurting the consumer and fattening wealth of select few who got the medallions. Now there is talk of bailing out medallion owners.
          In case of Airbnb, if an apartment is in a desirable location – it is letting the owners of the property to unlock the value of their property. You bring up anecdotal examples of drunken tourists – isn’t that something the city should handle irrespective of Airbnb?
          @Javert Chip,
          There are so many career paths that no longer exist. When old ones go away, new ones appear. People aren’t born ‘hospitality worker’. 
          I also don’t get your monopoly argument. When there is a more efficient competitor, it will steal business from Airbnb.

        • Javert Chip says:


          I understand your argument, but AirBNB isn’r really a commercial competitor – for a long time (10+ years) it has been HGHLY subsidized by very large hedge funds (and others) and it still can’t make a profit.

          Remember, I’m a pretty red-blooded capitalist, but even I recognize there is such a thing as unfair competition. Ten+ years of unprofitable competition comes pretty close to meeting the definition of capitalistic failure.

          Just because you have billions of dollars to piss away doesn’t mean you have a capitalistically successful business model.

        • GP says:

          Great point.

          Largely agree that a company shouldn’t survive for a decade without making profit and survive on speculative money. I also now understand what you mean by monopoly here – jamming a marketplace with billions of $ year after year so that there is no meaningful competition.

          I don’t agree with the root causes and solutions proposed here though.

          More regulations is almost never a good answer. Regulations look backwards, can’t be written/implemented to match the intent behind it and cause unintended consequences. I can understand however equal (hopefully minimal) regulations for all players.

          Isn’t the cheap money, low interests and resulting yield chasing the main reason behind all this wild speculation?

        • char says:


          There are in almost all cities laws against renting out short term apartments. AirBnB is helping to break those laws willfully. And it is not as if those laws are unpopular because living next to a apartment that is AirBnB-ed is not exactly an improvement.
          And about letting the owners of the property to unlock the value of their property. I’m not somebody who would say that a cities primary purpose is to unlock value but i person that lives in an apartment only spend a part of their income on rent. But for a city their whole income is important and the work that generates that income has also a lot of value so for a city an apartment unlocks more value if it is a long term occupier.

          About cabs. They are much older than cars and in practice it has been shown that a medallion system delivers the best, most “honest”, taxi system. Uber on the other hand has shown no profits, lower incomes for cabbies and will have bad cars and service when they get their welldiserved reputation as badly paid work.

          ps My country has no uber and no medallion system but it had one in the past and taxis were better then without Chinese complaining about a $500 3 min trip.

        • JZ says:

          What drives this speculation?
          The FED shouted to the “investment” crowd, go buy everything and fund everything, if they break, I will print, and your paper will be safe. No go and blow a bubble. Do NOT believe me? I will QE123 and buy 80 billion paper a month until you believe me. If you do NOT churn papers and fund debt and capital to the Elons and Adams, you will be left with zero rate for a long time and you will be left behind and absorbed by your competitors.
          The FED showers USD, only speculators gets some. Are you?

          I complained about Zombie money losing companies here in US. A Chinese guy I know scoffed at me. At least you have Telsla, Netflix and Uber. In China, those who build empty houses get some out of the Chinese central bank shower.

        • John Taylor says:

          The main problem with Airbnb is that it converts residential space (apartments) into commercial space (hotels).

          These zoning restrictions are important – societies need to have a reasonable place for their productive citizens to live.

          Allowing your neighbor to turn his unit into a noisy, smelly manufacturing facility may unlock “value” for the owner of that unit, but the negative externalities on the neighbors are obvious.

          The negative externalities of turning these units into hotels are plentiful including destroying a sense of community and preventing its development, causing a scarcity of housing that forces many into conditions of poverty, and leading to a cascading increase of rents which forces many into temporary living situations. On top of that, cities need to be able to plan for how many tourists they can handle so that their infrastructure isn’t perennially overwhelmed.

        • nhz says:

          in addition to what char and John Taylor mention above:

          A city needs affordable rents and office space to remain viable. The problem is (in many EU cities) that city officials turn a blind eye to what Airbnb is doing – at least until it is too late – because they are corrupt and allow their friends to make huge amounts of money turning residential properties into Airbnb speculator tax heavens. A very small group of speculators and their friends in politics reaps huge profits and most of the citizens experience all the downsize. Much like Amazon has been killing small businesses and is trying to corner the whole retail market “for our own good”.

          In my small city with its already unaffordable housing Airbnb has ravaged the city center over the course of just a few years. The city council only sings the virtue of Airbnb (or “property investment”, which means buying up property and letting it sit empty for years, in order to drive up prices to the max – why rent out property if it appreciates 10-20% every year thanks to the ECB?). None of this would be possible without the free money from central banks and the black hole investment model of Silicon Valley companies like Airbnb and many others.

          Can’t be long before Airbnb starts crowding out all other rental properties (except the social housing stuff), so you have to rent your appartment for $200 per day instead of $1500-2000 per month (which in my area already means over 50% of income for most renters), but without any of the regulations and protections that exist in the normal rental market. Now that would be a great unlocking of potential for homeowners (with multiple homes). Unrestrained greed is good, apparently. And the sad thing is, after they have destroyed the city the locusts will move on with their loot to another place, rinse and repeat. The normal citizens often have very little options.

          A smaller town close by has already been totally destroyed by such policies (mostly the “second home investment” type). It used to be very nice and but it is completely dead now except for a few weeks in summer when the elites flaunt their wealth there. All the shops and other facilities have been closed over the years because outside summer there are not enough residents left. But why worry, home prices have increased by 2000-3000% in one generation so everything is awesome, supposedly.

        • GP says:

          I still don’t see any solutions proposed here.

          At least more people now see the ill-effects of prolonged ZIRP and easy money policies. Yet people still hold central banks at high regard. Not as a bunch of narcissistic smartypants who just can’t stop themselves from constantly fiddling with the economy.

          Airbnb is a symptom. Central bank meddling is the root cause. Is there enough will power to take that on?

          However flawed the logic might be, it’s all private money. Can’t stop people from losing their own money willingly. If someone wants to keep their apartment empty and wait for it to appreciate it’s their money, their risk, no?

          There is tendency to control what others can or can not do for some “greater good of the society/community”. It’s done at every level – HOA level to control neighbors, City council level to control communities and businesses and further up. It’s generally viewed as against personal freedom and property rights in a free country.

      • MonopolyMoney says:

        Wow you just defined the Paypal business plan

        All these ‘unicorns’ are spoon-fed in SV by the same Sam-Altman stable, its no wonder they all do the same, and they all say that if you ain’t trying to make a monopoly, then you ain’t getting any seed money.

        Even back in the 1970’s when Gates started Microsoft, him & Paul Allen had one goal, to monopolize PC software, this is how you become a billionaire, trouble of course it ain’t just one or a few, its 1,000’s all doing the same thing, or with the same intent

        The real problem is Unicorns are buzzards, and all the corpses have long ago been stripped of carrion, and nothing remains of the USA buying public disposable income; Thus all that’s left is ‘grabs’ like UBER that can scalp a lift from a desperate soul, so now to be the only buzzard ( monopoly ) flying the skys of SV is the only goal, but how many buzzards can a land of death support? Real interesting stat is restaurant spending in SJ is down 40%

        Next big monopoly APP’s will be targeting people to rob coming out of the bar’s late at night, that’s how late we are in this game. Pretty soon like Baltimore there will be nobody left to rob, then what?

  3. David Hall says:

    Small cap mining companies are notorious for raising funds for exploration, finding nothing, then going out of business. Most of the S&P 500 is earning profits.

    Netflix seems overvalued. They have been investing in buying video content. They have about $4 billion in cash. The entire stock market is over valued according to some metrics.

    The US economy is no longer as much manufacturing as it is services. There is a high level of threat from China due to their theft of intellectual property and felony hacking.

  4. theodore m kumlander says:

    This is why I read Wolf Street. Wolf explains the situation in terms i can understand.

    It is amazing to listen to people hypnotize themselves and others into believing that investing in a company that is producing nothing is a good investment.

    • Iamafan says:

      Don’t you think that interest repression has anything to do with this?

      If the goal is to make people and funds search for yield in risky instruments because the yields in Government Securities are too low, then they surely succeeded.

      Now the side and after effects are bubbling. I wonder how they will save pension and retirement funds. The Fed pouring all that money just to put out a fire in the Repo market, basically reduced rates. How reduced rates help retirement funds are beyond me.

    • RD Blakeslee says:

      I wonder at all the rationalization about investing in today’s phony economy, al all.

      • Unamused says:

        It’s not possible to invest in the current economy. Risky speculation is all you can do, and that’s not investing. As so many have already pointed out, it’s just gambling in a rigged casino.

        I won’t dignify racketeering by participating in it.

        • JZ says:

          Then you get hurt. You don’t get the “forced” part of gambling.
          Fed literally pointing a finger at your head and said “get in”, if you don’t and your neighbor does, they will financially leave you in the dust. They will get houses and get laid, you don’t. Once you get in, thanks giving day come and you become turkey and got slaughtered by wall street reapers.

        • Unamused says:

          Then you get hurt.

          Don’t worry about me, JZ. I’ll be just fine. It’s you guys I’m concerned about.

          You don’t get the “forced” part of gambling.

          I don’t gamble. I play games of skill, like poker.

          I was not born to be forced.


    • Frederick says:

      Ahh memories of 2000 come to mind Remember how that ended

  5. HudsonJr says:

    I love these articles. The “valuations” push reminds me of Zynga several years ago. They were using users and daily active users to drive their valuation up. The issue, at some point the “value” of a daily active user was so high that Zynga (and others) began acquiring companies to expand their user base.

    So it became a scheme of:

    – Raise capital via a funding round
    – Use capital to buy users (via company acquisition)
    – Valuation goes up
    – Do it again

    Press coverage was also poor as they repeated that Zynga was “profitable” well after they were not. Yes, at one point they were a company that was making money. However, they went down the path with no regard to how they would be profitable, other than it was “in the future”. Then post-IPO when the profitability question was raised, it became clear that they would have to massively cut growth seeking activities to turn a profit.

  6. Lou Mannheim says:

    What does it say to the state of banking that a turd like WeWork was even brought to market? The investor community and the media performed the vetting that JPM was supposed to do.

    • RD Blakeslee says:

      Well, Softbank just bought WeWork.

      Softbank is in the “investor community, so JPM’s not at fault on this one.

      • Frederick says:

        According to Max Keiser Jamie Dimon is the devil incarnate and to blame for just about everything one could imagine Oh and Loydd Blankfein as well

      • Javert Chip says:

        JPM has blood all over their hands on this one.

        Besides being involved in the aborted IPO, JPM loaned Adam whatshisname hundreds of millions collateralized by We stock and was probably about to do a margin call (more properly termed a Treasury-call; is based on Treasury Dept regulations). Undoubtedly, JPM was having problems “valuing” the We collateral that only 2-weeks ago they were about to unload on the public & split up $450M in We IPO fees.

        The only thing saving JPM from abject humiliation is Softbank jumped in with yet another $10B (their total investment now about $19B) to gain control of We. All this for a firm that claims to be currently valued around $8B. That valuation is still much higher than industry comps, and has no positive cash flow to support it.

        Yippie! Softbank is now in the commercial real estate (not technology or venture capital) business. Once they get all the lipstick on, every dollar they get over $10B for selling this pig reduces their legacy $9.5B investment (NPV, NFV, legal and other truly substantial fees not withstanding). Softbank may yet regret simply letting We default and writing off the initial $9.5B investment.

        JPM may have dodged a bullet on this, but the still look like idiots.

      • nhz says:

        For sure Central Banks share a large part of the blame for the WeWork disaster (and countless others still to come). Without their crazy policies Softbank would not be able to do what they have been doing.

        That Mr. Neumann walks away with 1.2 billion after organizing this disaster will encourage others to do more of the same :(

        • Iamafan says:

          I think Wolf can do an article estimating JPM’s losses on WeWorks.
          We can wait for the final tally. That will be splendid.

  7. bebe rebozo says:

    In a perverse way, the banking system does not care about “bad investments”. It will just create more money. The ultimate bad investment is war. And that too leads to money creation. Taxes, central banks and war. The perfect storm.

    • Javert Chip says:

      The banking system does not “create” money.

      These types of deals may be put together by banks, but they are quickly securitized and sold to, you guessed it, pension & hedge funds. Very little remains on the bank’s balance sheet.

      This, and the huge fees involved, explain much of why banks are so cavalier about doing these kinds of deals.

  8. George Kovachev says:

    “investors in these companies count on new cash from new investors to bail out and remunerate the existing investors”

    I think that this is pretty much the definition of what in the West is known as “Ponzi scheme” and in the East – as “financial pyramid”.

  9. BenX says:

    Let’s not forget stock buybacks, which was considered an illegal market manipulation trick up until 1982. Why invest in R&D when you can just inflate your own market price ad infinitum?

    • Javert Chip says:

      The enterprise value of a firm stays the same before & after a buyback. It’s the number of shares that changes:


      1) On Monday, $1,000,000 market-cap firm has 1,000,000 shares; each share is worth $1,000,000/1,000,000 = $1/share.

      2) On Tuesday, firm does a buyback of 40% of it’s shares

      3) On Wednesday, $1,000,000 market cap firm has 600,000 shares; each share is worth $1,000,000/600,000 = $1.67.

      The firm’s market-cap didn’t change. Poorly written (deliberately or otherwise) performance plans and unsophisticated investors are often confused about fairly simply things they simply don’t understand.

      Share buy-backs are driven by a variety of reasons; the ones I have issues with have one of two of the following components:

      a) the firm uses shareholder money for share buy-backs at a market peak; shareholder value is destroyed in the market decline

      b) the firm has to borrow money to fund share buy-backs

      • char says:

        Market-cap does change as the company owns $400.000 less. I can’t say if its market-cap is $700.000 or $500.0000 the day after but it is definitely less. If a stock goes ex. dividend it also drops in value.

      • Bobber says:

        I don’t fully agree. The market capitalization may be less after a buyback because the company has less cash and investors may pay less for the stock.

        • Javert Chip says:

          Bobber & Char

          With all respect, you are both incorrect:

          On the day of the buy-back, the company exchanges cash for stock at equal value. The company has less cash, but owns more stock.

          What happens to the value of that stock and how the purchase was funded (debt?) are the issues.

          Personally, I’d much rather see corporate profits returned to shareholders via dividends paid out of earnings (not debt). Dividends actually reduce the enterprise value by the dividend amount paid because money has literally been returned to shareholders (who also still own their stock).

          Some stock buy-back is generally legitimate in companies using material amounts of stock as employee compensation. Stock buy-backs equalling employee stock grants (options, et al) prevents shareholder dilution.

        • Bobber says:

          I’ll respectfully disagree again. I’ll use a simplified example. Say company has $100 assets and $100 equity. The market cap is $100.

          If the company buys back all its stock, it then has zero assets and zero equity. The market cap is then zero.

        • char says:

          Market-cap is outstanding stocks, not any that the company has not issued (which it “owns” itself).

          Buying back stock in case a company issues stock dividend is a good reason to buy stock. Stock as employment compensation is rarely a good idea IMHO. It lets management focus to much on the short term

      • Calm Horizons says:

        Javert Chip:

        You don’t get to count buyback shares in the market capitalization formula (which is also different from enterprise value). Those go into treasury stock as a contra-equity account. The number of outstanding shares is literally reduced, precisely because the company owns those shares, whereas the price of the stock may not change at all. Unless the share price should sufficiently spike for some reason, then market cap (share price x outstanding shares) will go down. And this makes sense. The company has returned an asset (cash) to shareholders in exchange for reducing the shareholders’ claim on the company (equity). This may boost earnings per share, but it would be odd to say that the same company, with less cash, is somehow worth the same or even more. Perhaps you are thinking of a reverse stock split?

        • Javert Chip says:

          Calm Horizons

          It appears at the very least I have stubbed my toe here…I didn’t realize a repurchased-but-not-retired stock transaction reduced market cap.

          I was trying for a simple explanation, but it would have helped if had been a correct explanation. Thanks for the correction.

          I any event, I’m at best a luke-warm supporter of stock buy-backs as a capital distribution (I much prefer dividends).

  10. Just Some Random Guy says:


    How long does a bubble have to last before it’s no longer a bubble, but the new norm?

    Vancouver real estate has been in a “bubble” for 40 years.

    • Wolf Richter says:

      Just Some Random Guy,

      Yes the bubble in Vancouver lasted many years. But to see what this permanent plateau or forever bubble “new norm” in Vancouver looks like these days, check the charts I posted about Vancouver housing. Prices peaked in 2017 or 2018, depending on the type of index you’re looking at, and have since started to come down.

      This chart is from an article few days ago:

      And this chart is from an article in July:

      • Just Some Random Guy says:

        Even after 2 “crashes”, it’s 400% higher than 40 years ago. That’s not a bubble, that’s the new norm.

        • Just Some Random Guy says:

          Just noticed the chart only goes to 2002. Move it back to 1980 and it’s more like 600% higher.

    • Bobber says:

      I think the bubble status depends on whether Canada wants to remain a hot spot for foreign money laundering.

      • nhz says:

        The Netherlands has a housing bubble that started around 1985-1990 and is still going strong, with current yearly price gains of 5-20% depending on location, except for a small minus 15% blip in 2010-2012. In many cities homes are now 15-30x more expensive than around 1990, with income gains less than 100% (maybe 100-150% if you look at family income, with more working women). Over 90% of current mortgages are zero-down (buyers complain loudly that they have to pay about 1% of the cost out of pocket, in some cases). And all with government insurance against financial loss when you have to sell the home; supposedly nobody can ever loose money on Dutch real estate.

        In other words, more than one generation has learned that home prices can only go up, it’s the new normal and politics and central banks do a terrific job in keeping this epic Ponzi going.

        And my main point: all without foreign investment! Because that was almost non-existent (maybe except for Amsterdam) until 1-2 years ago. Native money laundering (from the huge drugs industry) might be a factor though, but it’s very difficult to find out.

        • char says:

          First. The bubble didn’t start in 1990 but much earlier but what happened is that in the 1980’s the housing market crashed 50%. Anybody who owned a home the early eighties remembers that.
          Secondly the average house was fl100.000 in 1990 and is now 400.000 Euro That is an increase of 9x, not 15-30x

          ps. I used nice round numbers from memory and i say 400.000 to be on the safe side. I could not find data going back to 1990. But the houseindex in 1995 was 42,3 for the Netherlands and 29.2 for Amsterdam and 132,7 and 155,2 for 2019 so in increase of 4x for Holland as a whole and 5X for A’dam

        • Pete in Toronto says:

          @nhz, it is good to see you back in the Comments section of I missed your perspective from the Netherlands.

        • nhz says:


          You could say that the housing bubble started earlier, but IMHO this was an earlier bubble, not the start of the current one. There was a bubble in the late eighties causing a price increase of around 100% (with lots of inflation, so not very spectacular). Then in 1980/1981 the bottom fell out and home prices crashed 40-50% in 1.5 years, followed by a decade of almost zero price gains in a time of huge inflation (I remember 8% rates on savings accounts), erasing all the bubble gains and then some.

          I don’t doubt your numbers but I think like many statistics they don’t capture reality. The real price gains of individual homes vary strongly but I have no doubt about 2000-3000% gains in some areas, like in many older city centers; I have countless examples of this and seen many others from other Dutch cities like Amsterdam. The only exception are usually apartments where prices increases were far more modest, like +400-600% in 30 years. Also, big and expensive newly build homes in the suburbs seem to have appreciated less to, probably because they were already very expensive to begin with.

          Average house price indexes are unreliable because the composition of the index is changing constantly, they don’t adjust for quality (and stuff like price per m2 doesn’t either …). Looking in my own city, while you would have a huge canal house selling for 50-60.000 euro in 1990, they now cost 1-1.5 million or more likely you see 6-8 small apartments instead costing 300-500.000 euro each. So the average is up only 7x, but in reality a 50.000 euro home from 1990 is now 2-3 million euro (including significant conversion costs, but still …).
          Also, in the nineties housing corporations started flooding the housing market with old, lower quality 1950/60 rental homes at relatively high prices (because basically everything gets sold if you wait long enough). The middle class rental home where I lived as a youngster in the sixties and that cost 8K euro to build in 1958, is now social housing (rental cost for people on social security income just EUR 280 per month) but when sold on the free market these homes cost 325-350K EUR. These homes now have better bathrooms and kitchens, internet connection and maybe double glass windows, but the price increase is nuts for a 60 year old home.

        • nhz says:

          correction for my reply above:

          the second sentence should start with “There was a bubble in the late seventies (starting around 1975) …”

  11. Chris says:

    I the Japanese tradition of SoftBank Adam Newman should exit WeWork off the roof of the Lord and Taylor building sans golden parachute onto Fifth Ave. if he had any honor. I kid. I kid. Kind of.

  12. Iapetus says:

    I’m not entirely sure how all this will play out, but my feeling is the end result will be very bad. Just yesterday Softbank announced it would spend billions to bail out WeWork which apparently was on track to run out of cash by the end of next week:

    This bailout money was apparently from the Softbank Group conglomerate, and not from its Vision Fund which is a pool of money funded mostly from Saudi Arabia and Abu Dhabi.

    So I began to wonder how Softbank raises this much money on their own in such a short time frame. It just so happens that Softbank accounts for over half of all outstanding Japanese corporate bonds, and is a meaningful portion of new Japanese corporate bond issues:

    Global corporate debt markets have definitely jumped the shark. All that money to save an insolvent company with no path to profitability, and provide a $1.7 billion golden parachute to its founder Adam Neumann. A great nugget from the FT article on how Softbank is funded:

    “It is not hard to see why SoftBank’s debt is so attractive to Mrs Watanabe (the catch-all term for Japan’s army of retail investors.) While the typical corporate retail bond yields barely more than 0.25 per cent, SoftBank’s recent offering came with a 1.64 per cent coupon. On top of that, buyers receive gifts, some of them connected to the baseball team SoftBank owns. And, while the group’s ¥15.7tn of interest-bearing debt and ¥27tn of total liabilities may mean that western credit rating agencies class it as junk, on the grounds of its high debt and low cash flows, SoftBank has an investment-grade rating from the local agency, JCR.”

    • Javert Chip says:


      Your concern is warranted. I view Softbank like the proverbial swimming duck, elegantly sailing the pond while paddling like mad, out of sight, underneath the water.

      Softbank is taking extraordinary measures to protect it’s two investment funds. There are multiple simultaneous financial games being played, but I suspect the one involving WeWork will play out quickly because Softbank has no concept how to manage world-wide commercial real estate.

      Huge funds can certainly take big hits, but spending $19.5B for WeWork (currently worth at most $4-8B) is breath-taking. Softbank’s short-term cash-flow demands are absolutely hellacious (WeWork isn’t its only issue); they need to dress this pig up & sell it.

    • Olivier says:

      On a side note, the Japanese have Mrs Watanabe, the French have the widow from Carpentras. What is that woman (or man) called in other countries: can the wise and learned Wolf commentariat chime in?

  13. Wolf – your present a classic working example of M2 (or the velocity of money). I have been a stalwart observer of this critical litmus test of economic health and considered it an essential reference point in any investing or evaluation of the markets. The fact is that M2 has never recovered from its pre-Great Recession level of 1.935. Today is stands at 1.457, off almost by 25%. Since 1960 the peak of M2 was in 1997 when it topped out at 2.198. You say nothing goes to hell in a straight line but this measure has pretty much done so since the Great Recession and belies the fact that Central Bank slight of hand as be responsible for asset appreciation – not economic performance.

    • Iamafan says:

      This is actually a great comment.
      The Fed’s dual (or triple) mandate since 1978 does not target the Velocity of Money. The three goals are: stable prices, maximum employment, and moderate long-term interest rates, (only).

      Interesting enough, the increase in Treasuries, unless monetized by the Fed, is not part of the money supply aggregate. So, I guess we can file Velocity as part of the archives.

    • Wolf Richter says:

      Lego Capitalist,

      I don’t think M2V, which you linked, captures the technologies of the last few decades of how money flows. You overlay the M2V chart with a chart of internet use, online sales, online banking and brokerages, use of checks, etc. and you will see the relationship very clearly. M2V has become irrelevant.

      There are other money supply measures that capture the flows a lot better, and they’re all up hugely, including these M1 and M2 measures:

    • Iamafan says:

      I’ll take a second stab at this.

      V (velocity) = GDP / M (or any money supply aggregate)

      When the Fed monetizes a lot of money (as in QE), the divisor (M) increases. Since the money supply increases faster than whatever GDP measurement you want, V goes lower.

      Hence the “turnover” of money has become moot.

      • Iamafan says:

        by M I mean Monetary Base, not just M1 or M2.

        QE (increases reserves) which is part of the monetary base.
        M1 is currency.
        M2 is M1 + deposits.

      • Bobber says:

        And why is velocity decreasing?

        When wealth shifts from the middle class to the wealthy, economic activity dissipates. Wealth concentration is the root of all our problems. We need to return to a sustainable state where workers get a decent slice of the economic pie, not because its fair, but because it’s necessary for long-term economic stability (i.e., stable velocity).

        That’s why Henry Ford paid his workers well. He wanted them to buy the cars that Ford made.

        • TXRancher says:

          That Henry Ford payed his workers well so they could buy Ford product is a fallacy. He paid them well because there was a large employee turnover and he needed it to stop.

  14. Gian says:

    I would imagine that investors are like consumers of these company’s products. My daughter and her fiancé own 2 Teslas (and love them) and my brother just ordered one (2 months to delivery). This, despite me telling them Tesla is in a world of hurt. Hard to see the light when your head is buried in the sand.

    • jon says:

      Teslas are the best electric car you can buy . I am in San Diego and I see teslas esp model 3 everywhere…
      I was about to buy one but I didn’t like it for some edgy reasons of my own

      • rcohn says:

        Almost %50 of Tesla’s are sold in CA. Charging stations are everywhere in the East Bay of SF. Cheapest gas that I could find was $3.99 for regular.

      • Bobber says:

        Did you get the 1990’s Saturn sedan instead? It has the same styling for 1/20th the price, and better reliability.

    • Javert Chip says:

      If you have enough disposable income, Tesla’s are GREAT cars…right up until you need to replace the battery pack.

      They make most other EVs look positively schoolmarmish. And they’re highly subsidized by all those greater fool investors and the US taxpayer (Federal tax credits).

  15. Ergomax says:

    I see no reason why the cash burn machine can’t go on forever. We already have the Fed handing 60 billion a month in ‘not QE ‘over to the markets a month.

    Sorry to say it really is QE, because from what I’ve read there’s a liquidity problem because the primary dealers have forsaken their role as liquidity providers in the repo market in order to force the Fed into giving them money.

    No doubt they’re buying S$P futures and shorting the $vix.

    For you youngins, it once was the case when Texas Instruments missed big and warned, the market would fall off a cliff. Now, we have TXN, CAT, MCD and others missing and yet there’s no volatility?

    Seems like the market is waiting for a 0.5% rate cut next week to push it up. I see no reason why they shouldn’t get it.

  16. Cone Yo says:

    I move to exempt shale gas companies from the “everything bubble.” I think they will be fed a steady stream of cash to burn as long as our economy runs on oil.

  17. Energy is still the alpha and omega of the economy. That did have the effect of making the US energy independent and could allow some future leaders to take us out of the global economy, which would cause some tough sledding. At this point the multinationals own us to an unprecedented degree. Voters are mad, at something, they will probably focus on these companies. Did your relative’s airliner crash? Did your son ruin his lungs vaping? The Vietnam war turned when everyone knew someone who had suffered a loss. MMT is probably doomed to failure which by implication means the entire money printing complex is going to face public resistance.

  18. R2D2 says:

    The top-10 US tech firms will deliver around $1 trillion of revenue and $200 billion of net profit in 2020.

    As long as the “big 10” keep making giant profit — like Apple and Google — then the “next 90” dreamers will continue to attract a tsunami of private and public money.

    Google and Apple are making $10-20 billion every quarter. That is a tasty carrot to dangle in front of the Netflix or Tesla dreamers.

    America’s “pass the parcel” tech economy probably has at least a year or two left to run. The “big 10” profits look good for now.

    • akiddy111 says:


      I think we will have a nice frothy gallop on tech over the next 60 days. The Q4 sell-off last year calls for a Q4 rally this year. That’s usually how it works.

      The market does not like to complicate things too much.

  19. Michael Engel says:

    1) The bad guys will not dare go for Xmas massacre #2.
    2) The DJ Transport is a very interesting chart (Renko 100 pts, hi/lo, accumulated volume)
    3) Its possible that after filling the gaps, down below, the DJT will
    test Sept 2018 high, or spike above, to a new all time high (using
    PnF x1, 100pts).
    4) SPX next move might be to close the gaps.
    5) A move higher, to an all time high, under 3070, is a bear market rally. A move above is a good thing.
    6) A move under 2870 indicate troubles ahead.
    7) What the market will do nobody know.
    8) The bad guys might attack after Jan 2020 peak.

  20. Brant Lee says:

    According to Visual Capitalist, of the twenty most profitable corporations in the world, NINE are now banks. And when governments have your back, how can you lose?

  21. Michael Engel says:

    Ilan is high tech.
    He might conquer the Chinese market for few rocket secrets.

  22. RON says:

    I am wondering if there is any truth to recent news about the rehypothecation of US Treasuries. If true this is probably why banks won’t lend in the repo market and the Fed is the last stop. In other words US Treasuries have been used over and over again as collateral maybe as much as 3 times.

  23. Olivier says:

    It’s weird to say that fake meat companies aren’t tech. On the contrary synthesizing meat-like products from plant ingredients is intensely technical, like the entire processed food industry.

    As for Uber, while it’s true that it is at heart a taxi company it is also a software powerhouse. See here a list of all the software packages they have developed: and that’s just those they have open-sourced. And it is good software, too (I use some of it myself). Other “mundane” companies also have large software development operations: look up the footprint of Airbnb or Etsy on GitHub for instance.

    So it’s complicated… It may be that all that software is only ancillary to their business model but there is no denying that some of these “mundane” companies are *also* tech companies, at least if you judge them by their output.

    • Ripp says:

      They aren’t in the tech industry, so they shouldn’t be considered tech companies. Using and developing software does not make you a tech company. Healthcare companies, insurance companies, and plenty of other huge industries have developed loads of software to increase efficiency. Heck, I’ve done it for my company, and we print t-shirts all day.

      Uber used software to make the taxi experience better. Bird used software to make it easy to borrow a scooter for 10 minutes. AirBnB used software to make it easy for people to rent out rooms.

      If these companies were selling this software to everyone they would be tech companies. Instead, they are trying to “disrupt” and monopolize their particular industries. Many of these industries have plenty of other players, and the barrier to entry to add “tech” is usually pretty low for already established non-tech companies.

      • Olivier says:

        Yes, it is reasonable to say they aren’t tech companies because they aren’t selling tech. I was reacting to the gist of the original article, which seems to be that they aren’t tech because (to cite) “there is [no] real technology involved”, which is untrue for many of them: they are very technology-intensive.

    • fromks says:

      >like the entire processed food industry.

      Wouldn’t that make them part of the food industry?

      • Olivier says:

        Or biotech, which is considered tech. The boundary between biotech and the food industry is blurring.

        • Olivier says:

          By the way, there is a difference in this respect between “vegan meat” and “lab-grown meat” (cultured tissue, really): the latter is pure biotech, the former less so.

    • Javert Chip says:


      Yea, but they ain’t selling software: they’re selling taxi rides and food delivery.

    • HowNow says:

      Good point, Olivier. Amazon’s AWL is currently its cash cow. Why the labeling of a company as “tech” (legitimate) or not (illegitimate) is childish.

      Consider this: The majority of the comments on this site are about the “morality” of this enterprise or that. And people like Javert Chip go as far as to say, in the same comment, that he’s a redblooded or vehement capitalist but wants to differentiate his form of capitalism from “gangster capitalism”.

      I’m as selfish as the next guy. I just try not to pretend that it’s some kind of philosophy, ideal, or moral rather than the plain and simple selfishness that it really is.

      If people here would stop demonizing one character/business or another, we’d go a lot further into being reasonable human beings that should try to figure out a way to keep our country and our planet from going down the tubes.

  24. timbers says:

    BTW the, the internets are saying the Fed is dramatically in creasing it’s…

    NOT QE, QE (repos).

    Apparently, the Fed is concerned someone might have a hang-nail…err…Brexit.

    Better to do preemptive rates cuts and Not QE, QE than to let Mr Market sneeze.

    And when that no longer stops Mr Market allergies, what next?

    NIRP’em, that’s what.

    • nhz says:

      What next? Looks to me like they are gearing up for the 100-year anniversary of the Weimar Republic, with Ms. Christine von Havenstein presiding over the festivities. Just over a year left to get hyperinflation started and destroy everyone but the 0.1% (and then the non-financial destruction can start for real, even more fat profits for the elites, yummie …).

    • Iamafan says:

      The Bank Reserve balances are already back in the area on $1.5 trillion.
      This was the level before the Repo bust.
      Before the increased Repo levels to $125b per shot, the $60b T-bill purchases per month, will take already take bank reserve levels from 1.75-2.0 trillion in a few months.
      My goodness. What is going on?

  25. Rcohn says:

    1+1 NEVER equals 3 , no matter what the FED or the ECB states.
    Just like the absurdity of negative yield for Greece debt or negative yields for junk bonds or negative yields for 100 year Austrian bonds, the irrational pricing of stocks that will never yield positive cash flow will eventually be corrected . When this correction happens the entire edifice of companies financing their operations via the greater fool theory will implode and blood will flow on Wall St and in Silicon Valley.

    • Wisoot says:

      Rcohn we can look on, understand it, mock it, denigrate it but what power do we have to enact change systemically to restore a market?

      If no power no change. The farce continues unabated. If the 99% average Joe stopped buying stockmarket items those left standing will be the banks algos playing each other. Now that would be interesting to watch.

  26. akiddy111 says:

    Great news. Tesla and Paypal’s stock explode after hours. Wonderful disruptive companies, growing market share.

    Ooops. Sorry wrong website. Please continue with your Armageddons or Carmageddons or whatever.

    • Wolf Richter says:


      Don’t worry about Tesla. Quarterly revenue fell year-over-year. In a few days, when Tesla releases its 10-Q, we’ll find out that the quarterly profit was due to a huge burst in tax credits that it had saved up. Then the following (current) quarter, those tax credits go away, and voila, Tesla will lose several hundred million bucks. This is a ritual at Tesla, and you should know it by now. What is new this quarter is the decline in revenues.

      • c1ue says:

        The Tesla 3Q seems to show tax credits as up, but not as high as earlier this year.
        The big difference was operating expenses: down $150M+ vs previous quarters.

        • Wolf Richter says:

          You have to wait until the full amounts of the credits (there are two types) are disclosed in the 10-Q. So hang in there, we’ll know in a few days when Tesla files the 10-Q.

  27. Iamafan says:

    If you want an example that nothing else (except US Treasuries and Agency MBS) matters, then look at Argentina and Greece. These 2 are countries, yet when their debt (or bonds) went unpaid, they did not even dent the US markets. I don’t think the likes of WeWorks can compare to a whole country. This is how crazy it can be.

  28. Nat says:

    Wolf, will you be looking at the Tesla earnings report from tonight on this blog at some point over the next few weeks? I would really love to see your insight here, because either Musk just pulled a miracle or he has done something pretty shady given the size of the beat on nothing that I can comprehend. Whichever the answer is, it would be interesting to learn about.

  29. char says:

    Another problem at this moment in time is that some big industries, like coal, internal combustion engine and the mall are in a phase in their life-cycle that they will experience a big shrink. Add to that towns/regions need a much bigger population size to survive because so many local employment is going dodo like for instance the mall store. This all leads to very interesting times

  30. Bobber says:

    When Softbank saved WeWork by offering more funding, I assume Softbank did this, at least partly, to preserve that value of its other bubble investments – like Uber. If WeWork went bankrupt, just think how that would impact the Uber stock price and broader market sentiment.

  31. nick kelly says:

    Off the top of your head, what would you think would be the rating of the bonds of Kraft Foods?
    Until a few hours ago, non-informed me would have thought: probably pretty good. Similar with Campbell’s Soup.

    Never having heard the name Newell, but hearing it has brands like Rubbermaid, I would have thought its bonds were also pretty good.

    Actually, all three are just one notch above junk or BBB.
    According to the WSJ, an incredible 60 % of investment grade bonds are just barely so: one notch above junk.
    How has this log jam about?

    The piece accuses the rating agencies, who are paid by the companies they rate, of dishonesty. They can’t downgrade them any further without losing the business so just like a school for rich kids that doesn’t want to flunk anyone, there are a whole bunch of C’s.

    I came on this via Zerohedge, a gold mine with about an oz of gold per ton of wild click- bait conspiracy theories.
    If you enter: WSJ ‘Are rating agencies complicit…’ it should turn up.

    But what happens when the log jam breaks?

  32. Mars says:

    Wall Street, VCs and PE etal aren’t the only ones funding CBMs. A while ago I “invested” in an “efficient, finely tuned, and endlessly perfected cash-burn machine” for five years.

    She found another investor and I haven’t paid more than $150 for a pair of shoes except my daily workboots 2x/yr.


  33. TonTon says:

    We have nothing to fear but Everything.

  34. Richard H Caldwell says:

    Very succinct analysis and very well presented. Thanks!

  35. CreditGB says:

    Wolf, With this headline, everything you worry about is dismissed. Buy, buy, buy!!

    “Tesla Explodes Higher As Company Reports Blowout EPS, Even As CapEx Disappoints Again”

    I guess if you can make up your own accounting and reporting rules, you can have an investor utopia with never ending promise.

    All is well, don’t worry.

  36. Lest we forget, isn’t Amazon still the biggest cash burn machine, though their source of funds is selling more stuff at breakeven (at best) in more and more market sectors? Amazon grows market breadth, penetration and share, not profits….

  37. Boran says:

    Interest rates and productivity, which are tightly coupled, have become a game of the biggest loser. The interest rate is just a number, when productivity declines or becomes negative at macro level, so must interest rates, otherwise those loans will never be repaid. Real productivity has been in free fall, ie society is reaping less and less benefits for larger and larger investments, it’s only a matter of time before nominally rates are going negative. NIRP is an effect, not a cause. The cause is hitting the limits of what added value society can currently produce given costs, and that’s going negative, ie regression. It’s simple math, and these days even status quo seems hard to maintain.

    • nhz says:

      if interest rate is just a number tied to productivity, why don’t the central banks leave it to the free market but deliberately, with huge efforts, force it down and panic as soon as it tries to rise a little bit (which supposedly is market action)? Negative rates don’t look “natural” to me at all, it is pure central bank manipulation nowadays to enable endless government deficits, drive up the stocks, investment RE and other stuff that the elites put their money in and to steal from savers and pensioners (because that is easy money as most people don’t understand).

      In history (in Europe at least) there have been long periods of falling productivity without rates ever going negative …

      Also I fail to see productivity declines (but they might be coming when society starts to break down), only slowing productivity gains which is something very different.

      • WSKJ says:

        nhz, your points are well taken. I would have taken them as inarguable, but having read Boran’s comment, I had to wonder what latest propaganda is out there regarding NIRPs (and also ZIRPs and VLIRPs to a lesser extent).

        One of Google’s first finds for me was:

        “Don’t Blame Central Banks for Negative Rates”, a PDF @ lazardassetmanagement, by Temple and Alcaly.

        To state the obvious: based on benefits accruing to Lazard from NIRPs, they are defending NIRPs, and putting the blame for harmful ramifications of these rates on governments/political leaders, instead. And they are arguing that the NIRPs are the result of general economic malaise (see Boran’s summary above).

        But, ….but….., there’s all that paper trail that Bernanke and others have left where they take credit for VLIRPs, ZIRPs, and NIRPs. Not to mention the obvious, that they set benchmark rates.

        I suppose that it’s inevitable that as global economies worsen, there will be a growing effort on the part of central bankers and their cohorts to portray NIRPs as something that JUST HAPPENED.

        I’m not buying it.

  38. Mark says:

    This all strikes me as The Greater Fool economy. No one would invest in these companies in their right minds. But the notion that you can buy this crap and sell it later for more money drives these decisions. Knowing that in the end the Fed will be there to bail everyone out makes the decision easier.

    • Mark says:

      However, let me add that in my effort to not be The Greater Fool, that is exactly what I was. I missed most of the biggest stock bubble ever.

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