However many billions of other people’s money your outfit burns, just make sure you walk away a billionaire.
SoftBank – the Japanese conglomerate that is the late-stage investor superstar behind imploded WeWork, bleeding Uber, and others – is planning to take a $5 billion to $7 billion write-down of its investments in these startups, sources told Bloomberg.
From the last round of funding in January this year, when SoftBank invested $2 billion in WeWork, until it imploded, WeWork was “valued” – by SoftBank in a deal decided behind closed doors – at $47 billion. This act inflated the price of all the shares that SoftBank and SoftBank’s Vision fund had acquired in prior rounds to the same level, creating instant paper profits for SoftBank and the Vision Fund.
Between the two, they have fed over $10 billion into this monster with the plan of selling it to the public at an even higher valuation.
Now SoftBank, as part of its throw-good-money-after-bad rescue effort, is buying $3 billion of the shares at a price that values WeWork at $8 billion, a smackdown of 83% from the last valuation – just months after wanting to sell this fiasco to the stupid public in a rip-off IPO for over $47 billion.
The sources told Bloomberg that the amount of the write-down has not been finalized yet and could change. SoftBank plans to announce the write-down on November 6 along with its quarterly earnings, according to the sources.
The primary factors in the write-down are SoftBank’s and the Vision Fund’s holdings of WeWork, of which SoftBank will own 80% after the bailout, and Uber, of which SoftBank owns 13%.
The rotten performance of the ride-share giants Uber and Lyft in the stock market – Uber is down about 25% from its already sharply lowered IPO price and Lyft is down 39% from its IPO price – “has influenced the way SoftBank is thinking about valuing its investments in the sector, the people said,” according to Bloomberg.
The value of SoftBank’s investment in Uber has plunged by about $3.5 billion between June 30 and September 30, according to Bloomberg. The Vision Fund’s investment in the rideshare sector, beyond Uber, include Didi Chuxing and Grab Holdings. Their paper valuations are now being reassessed as well.
SoftBank’s exit strategy with WeWork is to feed some more billions to this monster in the hope of putting some meat on it to allow it to hobble to the nearest IPO window. If the public isn’t stupid enough to go for this program, SoftBank will become the end user of its WeWork shares.
In terms of real estate investments, in addition to WeWork, SoftBank’s Vision Fund is also a big late-stage investor behind real estate brokerage Compass, whose unique business model is to buy other brokerages; and behind real estate non-brokerage Opendoor whose business model is to flip homes. Everyone is doing that now, including Zillow.
While SoftBank is engaged in some navel-gazing to figure out what happened to its billions, WeWork is laying off up to 4,000 of its 15,000 employees, and founder Adam Neumann, after blowing up the company, or rather after blowing up investors’ illusions and hype about the company, is walking away a billionaire.
This will teach all current and future startup founders a valuable lesson that will be taught over and over again in endless case studies in the best business schools around the world: Whatever the heck happens, and however many billions of dollars of other people’s money your outfit burns, just make sure you personally walk away a billionaire.
That’s the exit strategy. Create a cash-burn monster with zero chance of making it, blow it up at an opportune moment after you conspire to give it the maximum possible unicorn “valuation,” and walk away a billionaire, while others get to sort through the debris.
Neumann showed the world how to do it, how to leverage the CEO of a Japanese conglomerate who was blinded by reckless greed and a sense of infallibility after two enormously successful investments – Yahoo Japan and Alibaba – and who, based on this record, was trusted by equally blinded Saudi pension fund managers, and other investors. It’s not easy to pull this off so flawlessly.
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Adam Neumann is my Hero!
No he should be in jail.
I agree, scammer everyone trust him.
He’s not a scammer, he just disrupted the IPO market. Why bother taking your company public when you can get a huge payout without the hassel and paperwork of an IPO.
CEO founders of dotcom companies are not doubt eager to emulate Neumann in the coming years!
We all should thank him to highlight the absurdity of the current situation?
Investors will get smarter about investing without vetting a company?
Questionable accounting practice by Wework: better transparency rules for non-public companies?
People will be skeptical in future about believing in pie-in-the-sky, get-rich-quick opportunities?
As long as public money is not on the hook, I will just watch it unfold with some popcorn.
People need to realize its always been this way, back in the 1980’s we just to join as many startup’s as you could. Often 1/2 the team would be paid by the seed-investor to ‘go-away’, it was easy money.
The VC community has always been a scam, now SV build’s teams internally, it used to be techies would do a ‘startup’ come to a VC and ask for cash. Now a few rich VC’s have their own incubators, this is where the unicorns come from.
Go-Way money often made more than stay money in the long term of things, as most startups failed, and have always failed.
The people, bankers, who facilitated this should be in jail.
I suspect SoftBank will soon be deluged with investor lawsuits. It may have already started.
As for We? Based on the possibly fraudulent valuation activities leading up to the filing of the IPO, if the regulators are doing their jobs, criminal investigations are in order.
That won’t happen and everyone will forget about this in a few years. Then it will be back to “business as usual”.
Accountability is crucial for our system to properly work.
I also agree that all WeWork’s officers and entire board of directors should be held personally liable for their actions.
It is reprehensible that these individuals grossly profit so much, while imparting hurt on their employees and investors.
In addition, every “expert” in the investment community and media that recommended WeWork and otherwise enabled be called out and be held accountable.
I hope that SoftBank investors and employees do not suffer similar outcome.
I appreciate that folks like Wolf are exposing these kinds of risks and cautioning us against following the crowd.
I think Tom Stone is just being sarcastic.
It is a rotten thing that he lost the Gulfstream.
Jessy, I admire Chutzpah, and Neumann has it in spades.
The WeWork business plan was a more obvious scam than the guy at the Farmer’s Market who sells “Magic Beans”.
When I first read their business plan I started laughing, it is fantastic, literally.
So I’m enjoying the show and wondering what will come down the pike that will be even more absurd.
It’s a heck of a show, enjoy it.
Should probably avoid going to Saudi Arabia or any Saudi consulates, tho’.
Yeah, he better be looking over his shoulder from now on, lest his investors get some “ideas”.
Traveling on an Israeli passport to Saudi Arabia is always problematic.
I think you are confusing this scammer with John von Neumann. Now that man was a true hero.
A name from the days when engineers and scientists held social standing (society’s ‘innovation’ phase), to the current days where in the spiv and the smooth-talking, get-rich-quick chancer are revered (society’s decadence/degeneracy phase) in a few short decades…
Tell me about it.
Much of the modern economy is based on BS-ing unsuspecting busy consumers (this includes investors) into parting ways with their money.
We are in the last stage of capitalism, which is all about taking someone else assets/resources with the least effort. Innovation is hard and expensive, hustling and legal scams are more efficient.
Brilliant mathematician, knew more about shock waves than anyone. Without JVN the 1945 implosion gadget might not have happened. I had a wonderful scrappy Airedale I named Von Neumann that enjoyed fireworks.
I agree Tom Stone.
To all the other sore losers here, did Adam Neumann every actually LIE about anything?
If SoftBank continues this “success” We Work can sud-divide Soft bank corporate digs into to let spaces.Uber and Beyond Meat can circulate the cash one more cycle before the burn. Perpetual Motion may not apply to cash burners as it does mechanical systems.
Don’t forget Softbanks great investment in Sprint. They better hope the TMobile merger goes through.
Sprint has pretty much lost money every year. Softbank basically used all the Spectrum as collateral on loans to keep Sprint going.
SoftBank CEO Masayoshi Son plans to create another subsidiary that will lend Sprint money by holding its spectrum as collateral, according to the Overland Park-based wireless company’s third-quarter earnings report. The new unit plans to accept the carrier’s wireless equipment and spectrum, similar to “borrowing against the tires to make car payments,” according to Bloomberg, which also reports that Sprint’s spectrum is worth more than $115 billion.
Sprint doesn’t plan to give up control of its airwaves, but it does hope to get $3 billion to $5 billion this year from the loans. CTO John Saw has referred to Sprint’s three-band spectrum in a blog as “a powerful weapon” in the company’s arsenal. Sprint has holdings in the 800 MHz, 1.9GHz and 2.5GHz bands, and owns the largest piece of the high-frequency 2.5GHz band.
This new strategy is similar to the phone leasing company, Mobility Leasing Solutions LLC, the Japanese telecommunications company created in November that financed Sprint with $1.2 billion in cash.
Sprint laid out the plan in its third-quarter earnings report:
• Sprint continues to use its assets to help fund the business and fuel future growth.
• Together with SoftBank and its partners, the company is establishing a network-related financing entity that could provide $3 billion to $5 billion of incremental funding in fiscal 2016.
I wonder what could go wrong with this story. Did you essentially say that the company leases/buys a frequency spectrum from the PUBLIC then turns around and rents them to other companies?
Imafan: We Work’s long term liability/short term income stream business model is a contradiction and a recipe for failure because We Work assumes an unknown risk that is artificially suppressed by central banks: risk is a service now.
This psycho business model is totally dependent on zero risk-zero time value of money via FED expansionist policy.
Btw JP Morgan tried to hoist this crappola on the public.
Regardless, all the CEO’s, even Softbank’s, will come out just fine.
Should call for an oversized beer Mugs ( German size since its Oktober fest!). and lots and lots of pretzel :)
The Arsonists of Sofbank are having their pile of hay lit and this will enhance the Oktoberfest atmosphere:)
All this thanks to the sleeping at the wheel SEC ! How do you pass those atrocious prospectuses?!
How does the Three big rating agencies purport to have credibility when they don’t award such scams a well earned -c rating?!
When are you going to wake up Mr and Mrs citizens?
Enjoy the fest though !
Hopefully we’ll follow up this with an article on JPM and my Favorite one “GS”.
The call is your Wolfie.
Re: Should call for an oversized beer Mugs.
There is a solution. I bought two mugs. One for the left, and one for the right. Fits the large cans of IPA.
Now if only Wolf sold whisky shot glasses !!!
Just think of the two mugs as large shot glasses for dire market situations :-]
Adam Neumann said their mission was to “elevate the world’s consciousness”. What word can be used when hubristic is insufficient?
Urban Dictionary: Douchebag
The term “douchebag” generally refers to a male with a certain combination of obnoxious characteristics related to attitude, social ineptitude, public behavior, or outward presentation.
Though the common douchebag thinks he is accepted by the people around him, most of his peers dislike him. He has an inflated sense of self-worth, compounded by a lack of social grace and self-awareness. He behaves inappropriately in public, yet is completely ignorant to how pathetic he appears to others.
He often talks about how cool, successful, and popular he is, yet never catches on to the fact that he comes across as a total loser. Nevertheless, he firmly believes that he is the smartest, most desirable, and most charming person in the room… and will try to bad-rep anyone who would threaten to expose this facade.
He fancies himself a ladies’ man, yet tends to be a joke to all but the most naive of women. He tries to portray himself as part of the in-crowd (a fashionista, an upwardly mobile professional, the life of the party, etc.) but only succeeds in his own mind.
“Yogababble” as NYU professor Scott Galloway says.
Also known as “psycobabble”.
What words can be used when hubristic is insufficient?
May I have contracts and agreements for $2000, Alex?
You guys, sheessh. It isn’t Adam Neumann running things. It’s Alfred E Newman of, “What me worry”? fame. Get it now?
Matt Levine has an interesting tongue-in-cheek take on Adam: The guy deserves credit for figuring out how to short the unicorn bubble. He saw the crazy valuations, created a bunch of “unicorn” shares out of thin air, and sold them for big bucks.
Well yes I suppose in the same way one would ‘credit’ the Russian oligarch, or the African failed-state dictator because they worked out how they could game the system and walk away rich, too.
It’s all third-world thinking and behavior (ie plunder), so let’s celebrate the fast cash and be thankful we no longer have to get dirt under our finger nails doing any real work…
Oligarchs and dictators would be broke if it wasn’t for the help of democratic governments and big banks.
Not game the system. Follow the rules of the system. If they wouldn’t they would end up dead, see African rulers that try to do different and end up in a ditch because of the West.
David Stockman I think in the end will be proven exactly correct. He said Fed easy money was just going to lead to speculation aka gambling instead of real economic investment. You just can’t have a hurdle rate of near zero and expect smart things to be done.
Some are saying it even contributed to the Boeing disaster. Instead of designing a new plane from scratch they bought back stock and ended up killing a lot of people
A lot more than stockman have been saying this awhile. I wonder though, if you were a business, wouldn’t you rationally want to invest in profitable endeavors? Perhaps one can become richer selling hype with a ponzi, but I think most of these businesses want or wanted to become long-term profitable. Regardless of how expensive or cheap money is, a smart person would take the lowest hanging fruit and would seek what you call “real economic investment.” I think in theory the Fed thought this would happen. By making money cheap, demand would shoot up and you’d get all kinds of investment at the margin and the only trade-off would be inflation, which being low was argued to be a good thing especially to devalue old debts win-win. What we got was only asset inflation, and most of the credit impulse went into stock buybacks, real-estate, risky start-ups, and risky junk rated companies etc. as the hunt for yield kicked off. Why low interest rates would inherently favor trashy investments makes no sense. No, it’s more like there just weren’t good investment opportunities available in the first place so people just went with the best they could get. It’s making less sense for businesses to invest in providing consumer products and services though, when consumers cannot pay the prices necessary to justify the capital expenditure to provide those goods and services. It all comes back to the broken labor markets imo. The greatest conundrum of this last decade has been the lack of strong wage growth which I believe has held back inflation and created the paradox of why qe1234 didn’t create more cpi inflation. Just look at these companies and their revenue per employee and there’s obviously already a ton of deployed capital out there. Wages are up though just not much, while raw material costs aka commodities are cheaper than they were in the 90s which means everything should be way more affordable. There’s an old school concept that explains this, which I believe is the relative monopolization of many industries in our economy (although things like our massive aggregate healthcare spending also contribute). They buy each other out and squash competition, charging higher prices while giving fewer work opportunities. This is all evidenced strongly in the rapidly growing amount of income inequality. The system needs trust busting to fix it, but I guarantee you one party that speaks well of capitalism doesn’t want to do that. Their idea of capitalism is to become a plutocracy. When Warren speaks of busting monopolies and encouraging competition, one might think she’s one of the only people trying to save capitalism…
“They buy each other out and squash competition, charging higher prices while giving fewer work opportunities.”
They also cheapen their products. For example, try and find an indoor-outdoor thermometer that is accurate and lasts a year, anywhere on earth.
Or they buy out and dismantle superior small competitors. Smithfield Hams are not Smithfields (a place name) anymore and some of the excellent producers that used to be there and supply us with good quality hams, are no more.
Stockman? Hazlitt told the same about this in the 1940s. Many probably even earlier. Quoted from his book:
“So inflation turns out to be merely one more example of our central lesson. It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run it brings disastrous consequences to the whole community. Even a relatively mild inflation distorts the structure of production. It leads to the over-expansion of some industries at the expense of others. This involves a misapplication and waste of capital. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories or office buildings—cannot yield an adequate return and loses the greater part of its value.”
To clarify, he was talking about inflating the currency with the cheap/easy money.
It sounds great !1
Money to burn, money to burn …
So, the printing presses printing good money after bad are gouing full throtte ??
The market is saturated in an over supply of money then ??
Oh, am I wrong here ………… ??
Neumann is also getting paid $185 Million to be a consultant for We, after he is paid the $1.7 Billion for his stock.
That is the part that truly seems like a scam. I understand that he gets to sell his share in the company to get his billion+ buyout. But why in the world did SoftBank agree to pay him $40+ million per year to “consult” for the company.
I suspect the knobs at the top make these deals so that when they need/want a similar deal, it seems justified.
I assume that money is hush money.
The fundamental advantage Neumann had was his investors allowed him to retain super-voting classes of stock giving him absolute control even though WeWork was selling shares for billions. Neumann’s super-voting shares (I’ve read 10-to-20 votes per share), out-voted everybody else.
SoftBank needed control of WeWork to attempt to mitigate losses and salvage at least some of their investment; apparently a $1B buy-out and a $185M consulting gig for Neumann did the trick.
Dual stock classes with (among other things) differently weighted voting power used to be verboten; it’ll be interesting to see if VCs allow this to happen again.
So glad we live in a meritocracy where hard work with integrity is rewarded.
The repo market doesn’t think there is excess liquidity.
The FED intervened AGAIN last week with $205Bb injection in the repo market. When will the FED openly and honestly acknowledge they’ve resumed QE? Or are we supposed to blindly accept that there is no risk value and no time value when considering asset (bonds) prices? It appears that Krugman’s attempt to explain away the repo market situation as an anomaly is wearing thin.
The real FED QE coming this time is Helicopter money, making the last QE pale in comparison.
So whose hell-copter is to be fueled THIS time ? …
I sure don’t envision $$$ from Fed Heaven drifting MY way …. but then again, I’m not a Bullshit Artist, in the mould of the likes of this Neumann dude .. or the psychopaths that supposedly pass for ‘Federal Regulators’ …
WHY are ANY of these people still amoungst the living ?? …
Because the Fed is monetizing cash for the banks to speculate, and because they are also monetizing government paper, in the same process, the current account at Treasury is linked inexorably to the stock market. This is a confluence of forces which makes Repo far more dangerous than QE, USG places Tbills in reserves and banks turn them into cash, if they lose the money in a poker game they can’t redeem the bills. So EVERYTHING blows up. The financial crisis last event will be a government crisis this time.
You are doing the useless exercise in the attempt to make any sense of this. They will run it over the lemming stage on the old Disney moovies.
Save yourself with some hard assets or go to Buenos Aires to buy their stuff on the cheap.
Sorry about spelling just had eye surgery am still foggy.
I hope you feel better. All the best.
Wash, Rinse, and Repeat! Even chocolate Easter bunnies are hollow!
From the Guardian website:
[Employee (n) People who work for a tech company and are eligible for health insurance and retirement benefits. Importantly, this does not necessarily include the vast majority of people who perform work for the company and create its value, such as the people who drive for transportation companies, the people who deliver for delivery companies, and the cooks, cleaners, security guards and parking attendants on tech campuses. Less than 50% of Google’s global workforce. See Uber,sharing economy, disruption, scale.]
[IPO (n) Initial public offering – when a company begins allowing regular people to buy shares. A way for everyone, not just venture capital firms, to lose money, as in Uber’s recent disappointing IPO.]
[Sharing economy (ph) A system in which working does not mean being employed. See employees.]
[Unicorn (n) – A startup valued at at least $1bn. At one point, rare. Increasingly, not even that exciting.]
[Venture capital (ph) A system by which wealthy individuals can invest in startups before they go public. A legal and surprisingly respectable form of gambling. An alternate retirement plan for fortysomething multimillionaires who never developed hobbies.]
IPO’s the private-sector FIAT, a way for individuals to print and/or create their own money out of thin air. No real assets required, just a good story (hype)
Venture Capital – The devil, you take his money he owns you. A form of slavery, where return is most often less than employment. This gets back to why Neumann is/was cashed out, you sign a document you can’t sue later for lost wages.
Unicorn – a non-existent critter, not unlike 4d-chess, something that doesn’t exist that people can hang their hat on. Much of todays argumentation revolves around referencing non-existant objects and/or games as reality.
There is only one reality here, the IPO is a mechanism for creating wealth out of nothing. Berkshire has to pay real cash for their assets, but in this world Softbank is able to create ‘shares’ out of nothing, and sell to a bag-holder.
How many of the IPO’s in the past 5 years are still floating above IPO price? I can only think of one of 1,000’s
Just one word here “OPM”, Other Peoples Money.
Some of the biggest cash money I ever got was ‘walk away’ money, in startup’s its quite often that a seed-guy doesn’t like your team, so early majority holders are paid huge sum’s to go-away, does the team-member care? Hell no, I didn’t care.
The thing is like start-ups, and this case, nobody is using their money to make Neumann go away, he’s toxic and disliked, so they’re using OPM to send him, and he’s smart enough, not to fight and take the money, and then do his own gig ‘solo’ and then become a 100% owner is his next deal.
Neumann is/was the fall-guy here, he took that roll, and what’s his face at softbank has a scape-goat, and can say ahh-shucks about one of his investment-pools. Remember folks, only OPM was lost here.
Exactly. That’s my view of people like Bernanke and Yellen. Who are these people? Where did they come from? And how did they gain power? And do they actually have power?
That is, do Phd economic wonks have the power to put themselves in position of manipulating the most important market price? Or are they simply the monkey put in the position to drive the bus, by power people who picked that monkey, because they know that monkey will do what they want it to do?
In the case of Adam, he’s the vehicle through which SB ran it’s scheme.
Not that Adam/Bernanke/Yellen are innocents, but they aren’t holding guns to people’s heads forcing them to give them power / money.
Complaining about Adam/Bernanke/Yellen is akin to screaming at an Avatar.
BTW, in a supposed democracy. how do we have 330 million people complaining about one or a bunch of Phds controlling / manipulating the interest rate / financial markets?
How is it that these millions are powerless to stop this?
What does voting do?
If I were Neumann, I would walk/run and never look back. Although he may need some money for the lawsuits.
I am still not clear as to why SB paid the founder such a massive amount of cash.
Surely they could have played brinkmanship and offered a token number and told him to take it or leave it otherwise the shares go to zero.
But then I suppose that is a reflection on Softbank’s management i.e. they are clueless fraudsters.
Their business model is to pump up the valuations of their own book by feeding cash into dumpsters at higher and higher valuations.
But then isn’t this the business model of a huge swathe of listed companies including Apple?
Buy back your shares with tens of billions of dollars to push your share price higher.
The entire market is a %$$#$%$ joke.
Carrying on from there. I believe that much of the $700M that Neuman extracted from the company before this fiasco is in the form of a loan from JPM against his shares in the company.
If SB says to Adam sorry mate, if you don’t take what we are offering the shares go to zero and JPM will be seizing all those awesome homes you and the wife have been purchasing.
Hopefully, some smarter dude will review my comment for accuracy:
I think “stock loan” is a non-recourse loan. If this is accurate, when things blow up, the only collateral a bank can go after is the original pledged stock.
Again, if this is accurate, the bank wouldn’t be able to go after Adam’s (many) houses.
If that is the case then ‘wow’ If JPM made the loan on that basis and they don’t get paid back then that’s the price they pay for drinking too much kool aid.
Excuse my crocodile tears boo hoo. booo hooo hooo.
One of the dirty secrets of VC investing is the exit premium. Just because an investor buys or owns 10% of a venture, doesn’t mean they get 10% when they exit. In fact, the exit premium may be many multiples of the initial investment. An initial investment of 10% may be 20%, 30%, 40%, or more on exit day. Usually exits are IPOs but they could also be buyouts by the other investors/suckers.
I would be interested in finding out the exit premiums allocated to the parties in the initial WW deal. I’m betting some investors are more equal than others.
The SoftBank/WeWork scam is part of a multi-pronged strategy to inject increasingly worthless USD back into the US economy. It is a sick %$$#$%$ joke on all of us. One can only hope that Mr. Neumann will reap some of the negative Karma he is sowing.
Recall the scene in the Matrix movie where the character is offered the opportunity to choose a new life. If I recall if he changed sides he’d be rewarded with options that included rock star, famous actor etc…
From what I have observed of Adam, and his previous track record, and given he walks around New York barefoot murmuring nonsense, and his freak for a wife, I cannot help but wonder if the Matrix is a real thing.
And he, decided to betray his cause and take the option of ‘billionaire’.
It makes sense. Who really wants to be an actor or a rock star. Or even a pro athlete. Much more relaxing to just take the money and take it easy.
I know this conjecture all sounds a bit crazy, but for the life of me I cannot come up with a better explanation for what has transpired here.
Surely SoftBank is familiar with this concept, otherwise WeWork was just a wealth transfer, sold with new age speak.
I hear the Saudis are trying to get Neumann on board to float Aramco. ;-)
Behold! innovation and research is supplanted by central bank fiat, then eliminated in real time. Thanks, FED.
There is one more innovation by the Fed that can help here.
As far as I know, the current Fed Repo is only done with primary dealers (just 24 of them).
Therefore, we are dependent on the increase of reserves of these bank/brokers to flow into cash liquidity (the so-called broken pipes) for some non-dealers who need to borrow cash at repo. Some transformation and intermediation is definitely required.
But what if the Fed simply Repo with the expanded list of counterparties they already accept for REVERSE repo (presumably the Fed may have to use a cash account since not everyone is a bank with reserve accounts) This will open repo DIRECLTY to a much wider audience and perhaps improve liquidity better.
Here’s the much large list: https://www.newyorkfed.org/markets/rrp_counterparties.html
click on current list tab
Since non-dealers are bidding and buying an enormous amount of Treasuries DIRECTLY, the least the Fed can do is actually help them directly without depending on the dealer’s kindness.
The charter banks are basically zombies, investment banks with GSE status and trading desks connected to ME. The Fed has a plan to use them to implement the next QE. RRPO is useful to keep a bid under overnight rates and sure enough they are having trouble keeping Repo rates under the upper Fed limit. I agree I think they want to repress they just aren’t sure how to do it? When the treasury paper that was borrowed then sold back to the lender, is on the other end of a busted Repo deal SHTF. Some have said it will take a trillion for the Fed to plug that leak with their primary digit.
Dealer kindness is locked up in their net OI short UST futures up and down the curve, and as long as those “non-liquid” non member bank/dealers dont pay back their loans, and have to keep rolling over onto more loans, you can expect dealer more dealer kindess to be locked up in larger net short UST futures.
If the Fed wants to RRP more directly, dealers will close out their positions, and let everyone else figure out if they want to be on side of rehypothicated assets unheged.
I suppose we are interested to find out how deep, if any, the contagion is. Sure the laid off employees will suffer, that’s a given. But what will happen to Softbanks’s creditors, and the building owners that probably won’t get paid. Are some fund investors gonna blow up? How about lenders? How deep is the entanglement?
Ken Fisher is another guy you have to wonder how in the hell did he ever get to manage $100 billion of OPM. Making crude remarks as part of your speech at a public forum is beyond stupid. It was unnecessary and didn’t even make sense.” If you can’t discuss ‘genitalia’ you don’t belong in finance”. What the hell does that even mean?
What it means is “I’m an emperor with a massive ego, watch me break all the rules and norms because I can.” Not a prescient mindset for managing money.
You would be amazed at the percentage of wealthy (say $1M+) people who have no real idea how to manage their own money.
Touch of Alzheimer’s
Loved the “meat/hobble” comment. :)
Got it figured out. Softbank is offering interest free interest only payment loans to insiders. The rest of us live with the weakening currencies,
What’s a few bil between friends? :)
All this thanks to the sleeping at the wheel SEC !
Nonsense. They’re doing exactly what they’re paid to do.
Other do-nothing jobs pay better, but they’re not qualified for those either.
Some are saying it even contributed to the Boeing disaster. Instead of designing a new plane from scratch they bought back stock and ended up killing a lot of people
Boeing executives will be quick to point out that none of their so-called victims have made a complaint.
Making crude remarks as part of your speech at a public forum is beyond stupid.
Not if it gets you elected.
No guess you aren’t ‘amused’ because your comment is not funny , witty or clever. It is just boring.
That one really tingled, didn’t it?
Never give a sucker an even break. Adam Neumann is the exemplar of this. Others should learn from his success. Is it really the fault of the conman if others are stupid enough to fall for his BS?
Is it really the fault of the conman if others are stupid enough to fall for his BS?
Congratulations on your discovery of the foundations of human civilization.
Conmen and cheats have existed throughout history. What’s distressing is the failure of institutions to identify and reject them.
That’s because the institutions are quite often owned by them.
And then people wonder why the ‘west’ if falling behind China. A billion here a billion there, sooner or later it adds up to real money.
So, this is the free market’s wonderful system for efficiently allocating resources?
My advice to anyone young …. learn to speak Chinese. In the long term, that’s where this trend leads.
My advice to the young:
Arrange your life (nobody I know of says it’s easy) to live in a low-population area and spend time exploring the record about your culture. Books (mostly!) old graphic and audio media. Enjoy worthwile culture and your own independence.
I have a nephew who taught himself Mandarin. Then he went to law school–majored, if that’s the correct term, in international law–and passed the bar. He can write his own ticket now.
What’s the difference between what China is doing in HK vs what the US did to Occupy Wall Street when it’s leaders were rounded up & tortured? Or when US threatened to assassinate them if they continued? How many nations has China bombed in the last 10 yrs vs our 7 and counting? Does China assassinate it’s children as American leaders do? Who is the US to lecture others on human rights? I recommend not throwing stones in glass houses.
Please point us all to the evidence of OWS protesters “rounded up and tortured” and “threatened with assassination” by the “US”.
“Does China assassinate it’s children as the US does?”
Do you have any idea how China enforces it’s one child policy? They would force the law breakers into abortion vans for forced abortions.
Is bombing always bad? Was it bad to bomb Nazi Germany or Imperial Japan? Is it bad to bomb totalitarian Jihadis?
Remember all the footage of Tienanmen Square massacre you didn’t see?
And haven’t you heard, China has up and running a super vast surveillance state that’s it not shy to use?
And please check out the murder record of China’s current government.
Sure, they’ve become real softies in recent decades, but after you kill several 10s of millions of people, you don’t have pull out the stick so often, right? Especially when you are monitoring every comrades “social credit score”.
“Not throwing stones at glass houses”?
Nice. Right, it’s all relative. Who is to judge?
Our glass houses utilize only the Best Tempered glass, don’t ya know …
Guess you missed the part about China’s mid-twentieth century collectivization effort, killing somewhere between 60-100M (depending on who you ask; nobody cared to count).
I’d bet at least a couple of them were children.
Wanna talk about the 1M+ Uighurs in China “re-education camps” as we speak?
50-100 million? Javert i understand you don’t like reds but those numbers are bullshit.
You, my friend, need to read history. What number would you propose?
Indeed there is uncertainty about the numbers (60-100M is huge uncertainty), but that’s the best set of numbers smarter guys than you and I have come up with.
The numbers are pretty widely quoted & the twentieth century wasn’t very kind to humanity.
“In a secret meeting at Shanghai in 1959, Mao issued the order to procure one third of all grain from the countryside, saying: “When there is not enough to eat people starve to death. It is better to let half of the people die so that the other half can eat their fill”. In light of additional evidence of Mao’s culpability, Rummel added those killed by the Great Famine to his total for Mao’s democide for a total of 77 million killed.[av]”
China starved 10s of millions of its own citizens in the Great Leap Forward, destroyed it’s educational foundation for a generation with the Cultural Revolution, currently has a million Uighers in concentration camps, and allows no free speech regarding it’s government. The US is imperfect, but it’s sins are orders of magnitude lower than this.
And what is the utter garbage you are spewing about occupy Wall Street people being tortured and assassinated? Take off the tin foil hat.
Perhaps you forget what America has done in these last seventy years with its perpetual wars, not to mention the millions and millions of deaths in a war devoid of any logic for America but very interesting for military industry like Vietnam, Laos and Cambodia, Serbia, Libya, Iraq, Syria and others the list is long, you must first clean up in your country before looking at other countries like China which is not an example with its millions of deaths and which is still currently an open field of concentration for its citizens, exploited as slaves in the American Chinese companies by their communist leaders, but that is all right for business.
America with heavy responsibilities around the world and a bit of mea culpa would do make
America is not without guilt.
But to suggest that one can not blast totalitarian horror show death machines because America has some / a lot of blood on its hands, servers what purpose? Seems to me it serves totalitarian regimes.
The USA industrial military surveillance complex is a real negative threat to USA citizens and people around the world. It has done a lot of damage and wasted a lot of money and lives.
But please specify which wars were devoid of “any logic”, so I can properly answer. And maybe demonstrate for us how they were devoid of any logic.
America has had a lot of wars in last 70 years, some better than others. That’s a natural consequence of being one of the few (or only) superpower with global interests.
Your extraordinary claim of America’s “…millions and millions killed devoid of any logic…” requires evidence. I’ll concede the Vietnam war was senseless and killed an estimated 1M Vietnamese, but where are the other “…millions and millions…” you refer to? Where are your numbers?
You’re also being challenged to explain why you think specific major conflicts were “…devoid of any logic…”.
BTW, one of the consequences of America’s post-WWII activity was the end of the Cold War and freeing about 100M central/Eastern Europeans from Soviet communism without a nuclear catastrophe or major military conflict.
The problem with ‘disruption’ as a business model is that it is prone to hangfires.
The problem with The Greater Fool theory of investing is that practitioners quickly run out of Greater Fools. While it’s clear that the supply of Fools is infinite, the number of available Greater Fools is inversely proportional to the quantity of Investor Egoism.
Don’t worry about Softbank. It’s not like it’s their money, and besides, if they run short, they can always arrange to have yours confiscated to bail them out.
After I read Zoltan Pozsar’s work when he worked for the U.S. Treasury (he is at Credit Suisse now), there was something he said that got tattooed to my mind. That is that many institutions protect themselves from an unsecured position by moving into a better hierarchy of secured by public money position (even if done overnight, repeatedly).
With such high amounts of risk and debacle involved at WeWorks, I can only imagine how large investments in high risk endeavors like this can end up intertwined in the Repo markets where institutions try to get some “protection”.
I am wondering if the craziness (Yes, the amounts the Fed pours in daily is crazy) in the Repo market today is an offshoot of the froth in other markets. There’s got to be a connection somewhere. Liquidity is fungible, right?
The cheap money offered by the fed repo operation is also free protection on the rest of the borrower’s marks. If borrowers go to the private repo market they are opening themselves up to repricing than entire class of debt with new market prices. The fed is front running this possibility by offering cheap repo up front. This way borrowers don’t try to sell the dogs and find out they are dog poop instead.
Petunia, are you suggesting that the Fed is buying non-marked-to market crapoodle? Just like they did with MBS.
No, I am not suggesting they are buying the crap. By making borrowing cheap with treasuries, they are helping borrowers not sell or repo other stuff nobody wants to have repriced at much lower valuations. When repo rates went to 10% that is what was happening. Bear Stearns all over again.
Make up some misleading cock and bull story and become expert at stealing from investors like mom and pop especially, this way you can avoid the headaches caused by actual creation, innovation and comprehensively researching opportunities.
That’s so last century.
WeWork, Uber, Lyft, Tesla, SoftBank, Mr. Son, and Mr. Neumann all make Bernie Madoff look like a petty shop lifter.
This is like “Though the Looking Glass” mixed with, “Friday the 13th”, and “Wall Street”.
I’ve read some stuff on twitter that thinks Japan’s NIRP can be used to get free money from the Federal Reserve if you have access to Federal Reserve alphabet-soup programs. Involved something like 10 basis points spread so would require very large loans to be worthwhile. If true that might explain why SoftBank is so freely paying out over a billion when they could contest it. SoftBank might have something in play that they don’t want exposed.
From government to stock market…looks like Con-man rules the world. Sad state of affair. Let those Ponzi scheme continue…
To be fair, the “investors” here are to blame.
A quick 10-minute Google, looking for benchmark rivals, would have told them WeWork was a sham!
For example, Regus UK has been doing the same thing since the last century (flexible office space), and its marcap sits at roughly 1.5 x current revenue.
WeWork should have been valued at 2-3times revenue, at most. That suggests a valuation for 2019 around $5-10 billion max. Certainly not the insane $47 billion hype.
The “investors” obviously did not do their research.
I keep on getting the feeling WeWork’s crazy valuation was a dry run for Aramco: the Saudi government wanted to test how much they could push gullible and greedy Westerners with a valuation decided behind closed doors by a handful of insiders, most likely on nothing more than a whim.
After Asian markets lost their enthusiasm for the much-anticipated Aramco IPO, the Saudi government has been shopping around for an American or European stock exchange to float Aramco, so far with no luck. Even the London Stock Exchange has so far refused to touch Aramco, and that’s despite the usual well-funded lobbying and PR campaign by Riyadh.
The only way Aramco can be floated at the conditions the Saudi government want (which include no voting rights for external shareholders and divulging only the financial and industrial information Riyadh wants) is if Western financial markets are whipped into a frenzy similar to the one which led the common garden slugs heading the US Federal Reserve to cut rates for no other reason than to appease the crybullies.
And what better way to whip the crybullies into a frenzy than an insanely high IPO valuation?
Unfortunately there are still a few sane persons around these days: they may be powerless to stop the central bank madness (chiefly because most people profit from it) but they can ask a lot of good questions, just like they did with WeWork.
It’s the Butterfly Effect: a butterfly flaps its wings in Sanya and a storm breaks out in Rio de Janeiro. And I want a whole lot of storms to break out. ;-)
id like to comment on KSA’s notoriously circumspect approach to Aramco’s proven and probable reserves. The giant fields of KSA were discovered before 1970 yet Aramco is all over the map on how much proven is left. IF the estimate is correct, there are ~70 years of oil waiting to be drawn out. On the other hand, why does the KSA appear to be cash strapped to the point of paying its foreign workers in IOUs? I personally do not believe the KSA’s official numbers on its proven reserves. There’s just too much uncertainty surrounding the Aramco IPO hype.
Well, the same banks that brought you Uber & Lyft are beating each others brains out to bring you Aramco.
I’ve also read wealthy Saudi families are expected to buy large chunks of the Aramco IPO. For the record, this is roughly the same crowd that was rounded up 2-3 years ago, imprisoned in the Ritz Carlton, tortured and shaken down.
Interesting sales technique.
“Interesting sales technique.”
( I have an offer that you can’t refuse). :}
just the Saudi version of what Mr. Draghila at the ECB was doing: we will fine your savings at 1-5% yearly (percentage varying between EU countries due to wealth taxes and real inflation) until it is completely gone. Better spend it or invest in the stock market or real estate (that have appreciated beyond crazy thanks to ECB policy, so huge losses at some future date are assured). And Ms. Lagarde wants to provide EU savers with an even better water drop torture experience; maybe she should consult with MDB about efficient monetary policy…
R2D2 is being too kind. Can any business appraisers explain why WeWork should be allowed a gross revenue multiplier higher than that of Regus UK? It is more reasonable to use a lower gross revenue multiplier.
WeWorks offers a higher level of amenities to attract its tenants. It offers superior T.I.s, more staff, and more afternoon beer service. These amenities all cost extra money per sq.ft.
For the same gross revenue, WeWorks should achieve a lower level of net revenue. That means a lower gross revenue multiplier should be used, not a higher one. And that means WeWorks business value may be much lower than SoftBanks’ latest speculative estimate.
Until a couple of months ago, Softbank claimed a WeWorks value of $47 billion. Now it claims a value of $8 billion. On what evidence does the new Softbank valuation have any more credibility than the old one, which now has no credibility at all?
I can’t find any 2018 Regus annual reports, but the 2017 report showed a non-EBITDA net profit for 2017 & the previous 4 years.
Valuations of a money-losing, never-ever-made-a cent-of-profit pig with lipstick based on multiples of revenue is the road to Perdition. Could probably get there quickly in an Uber Tesla.
The Softbank Vision Fund has an unusual structure that funds its $100 billion pool with approximately $60 billion in equity, and $40 billion in debt, where Softbank has committed approximately $28 billion of this equity.
So a $5 billion write-down by only Softbank due to WeWork and Uber suggests an 18% loss of the Vision Funds equity, while a $7 billion write-down by Softbank for WeWork and Uber suggests an 25% loss of the Vision Funds equity. That’s assuming none of this loss is attributable to their yet to be completed bailout, which I doubt would be possible with an assumption of immediate loss. This means the Saudi’s and Abu Dhabi are looking at an 18% – 25% loss on their equity in the Vision Fund next month, and who knows what implications for the 7% annual coupon they expect to receive for Vision Fund debt.
My guess is this will be the first of many severe write-downs of the Vision Funds portfolio of companies.
I would watch to see what happens on November 6th, the date Softbank is set to formally report their second quarter earnings – write-downs and all. November 6th is also the day when Uber’s shareholder lock-up expires, meaning Softbank along with all its other investors will stampede for the exits and probably magnify their losses in this company.
The probability of a Dow going down by 20% by Christmas is REAL now.
Couple days ago, Matt Levine was discussing how SoftBank Vision fund will pay the upcoming 7% interest to qualifying investors…it had a very Ponzi smell about it.
Given the size of Neumann’s exit package, it appears Neumann was a pawn and Softbank’s Son was driving the whole mess. There are articles out there describing how Son encouraged/ordered Neumann to “be crazy” and not hold anything back.
In my opinion, Son was the key scam artist. Neumann was his towel boy.
At all times, Neumann maintained voting control of WeWork because of his super-voting class of stock. In order to gain control, allowing SoftBank to attempt salvaging some of their investment, SoftBank had to get Neumann out of the way, which required a payday of over $1B.
Unless Son pulls off a miracle (which we won’t know for another year or so), it’s looking like two equally-matched con-men (Son & Neumann) sat in a room and effectively got buried in each other’s bullshit.
Hard to tell who was the cause and who was the effect…but right now, Neumann is walking away with Son’s $1B.
Yes, but Neumann had voting control over nothing. WeWork was nothing without Softbank’s heavy support. For some reason, the arrangement reminds me of the 89 year-old doofus billionaire who married Anna Nicole Smith at age 26.
Neumann had complete voting control over SoftBAnk’s legacy $10B investment – that’s huge leverage.
As long as Neumann had super-share voting control, SoftBank couldn’t touch WeWork. You may not like that, but that’s the way it works.
SoftBank’s legacy investment in WeWork was somewhere around $10B. SoftBank will now pay an additional total of about $9.5B to Neumann for control, plus buying out some employee stock options/grants, plus providing cash to WeWork.
SoftBank’s Son is in the unenviable position of now having paid a total of about $19.5B for a firm that is currently worth $8B (probably less).
Neumann walks away with $1B+ (plus his hundreds of millions of personal loans are paid off). You tell me who the doddering old fool is.
The internets are saying DOW 650,000. Eventually. As HAL 9000 said: “I can feel it. I can feel it. I can feel it” as computer chips were being removed from brain.
What I don’t understand is why I can’t buy a $1000 bicycle, sell $3000 worth of raffle tickets and hold a raffle, with someone actually winning the real bicycle.
Yet these tech scammers can scam huge amounts of money with more and bigger bets that pay nothing and it’s all OK.
FYI, Softbank is about to be the largest owner of U.S. newspapers. In 2017 it bought Fortress Investment, which owns New Media, which controls Gatehouse, which on Nov. 14 will get shareholder approval to acquire Gannett and become the largest single newspaper owner in the country. In an industry that continues to downsize and suffer significant layoffs. What could go wrong?
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