Uber's media strategy: $1 million to dig up dirt on reporters

Yup. Billion.

Kraft Foods
Delta Air Lines
General Mills
CBS
Macy’s
Viacom
Kellogg
Halliburton Company
Archer-Daniels Midland
Aetna
Northrop Grumman Corporation
Aflac
Hilton Worldwide
Hershey
Best Buy
Clorox

Those are just a few of the Fortune 500 companies whose market caps are less than Uber at that valuation. Uber is more valuable than almost 75 percent of the Fortune 500. And it's not like most of those companies are cheap right now. Thanks to the world's central banks, we're in a full-fledged multi-asset bubble right now.

Delta airlines did $37 billion in sales last year. Uber probably did about $400 million. But Uber is more valuable -- at least according to the fringe financing markets it is availing itself of -- this latest round will be in the form of convertable debt.

Airbnb was valued at $13 billion in its last round of financing. Dropbox is apparently worth $10 billion to someone. What a world, eh?

The VC / equity investing /corporate debt market communities are all taking part in something that is eventually going to end in disaster. Think the dot-com bubble, but without retail investors as widely involved (except through their 401Ks). I could go on and on about this stuff, and what is causing people to lose their heads, and how I think it is going to eventually end, but I'll spare y'all. I get that most people don't pay attention to this stuff, and won't have a clue it was even happening until the aftereffects, but on the face of it, it's not like people can't look at something like Uber being valued more highly by VC than Delta Air Lines and 75 percent of the Fortune 500, and realize something isn't right.

 

You'd have to ask the people putting their money up how that equals $40 billion. I have talked to a few VC investors who think they see a $100 billion company. I think the reason you can't wrap your head around it is because you haven't lost all sense.

I understand valuing something richly, if it has growth potential. It's speculation. But this goes beyond the usual growth vs. value investing styles.

You asked for it. ... So here goes. Since the financial collapse, the world's central banks have been the only thing preventing the total global collapse that is needed so that the world's economies can flush out all of the bad investment those central banks created in the first place. We are not going to get a recovery until it happens. To put it in perspective, under Alan Greenspan, and then Ben Bernanke, the Federal Reserve increased its balance sheet by 50 percent between 2000 and 2008 -- by manipulating the interest rate market (always suppressing rates to try to drive people to accumulate debt and spend). That creates the appearance of a growing economy that will create jobs forever, but it's a mirage. It is just financing the appearance of prosperity by encouraging massive amounts of debt. That led to a lot of malinvestment, including the housing collapse.

In the aftermath, what we needed was to flush out all of the bad debt that had accumulated -- not just in the U.S., but worldwide. There needed to be massive defaults and a reset, so there could be a recovery. It would have meant a deeper recession than we have seen so far, and a lot of pain, but it would have flushed through by now and we'd be back in natural business cycles. The ECB, Bank of Japan, Federal Reserve, People's Bank of China, etc. haven't allowed that to happen. Instead, they have done more of what led to the problems in the first place -- to varying degrees and for different delusional reasons. And they have done it on steroids. Manipulating interest rates isn't enough anymore, so the Federal Reserve has intervened in our markets and has done several stints of being the biggest buyer in a few of the debt markets -- mortgage-backed securities and treasuries. The result is that the Federal Reserve, which had already increased its balance sheet by 50 percent between 2000 and 2008, has increased it 5 times since then -- it holds close to $4 trillion in assets that it will never be able to unwind without creating turmoil. It's a looming disaster and they know it. It's an unprecedented experiment and it has grossly distorted people's risk perception.

What their actions do is create inflation -- not the way everyone thinks of the word the way it gets used a lot nowadays (as a proxy for consumer prices, although consumer prices do keep going up). Inflation is expansion of the money supply. And the world has been flooded with fiat money. They have printing presses and they are using them to avoid dealing with the reality that everyone ran up too much debt. That can show its effects in lots of ways. Because of the methods the Federal Reserve has used to create that inflation (buying assets), the biggest effects have been on speculative assets. Even without the bubbly speculation, people can't keep pace with inflation, and earn yield through what have always been relatively safe investments -- money market funds, bank accounts, CDs, short-term government bonds. ... even longer-dated investment-grade corporate bonds. Interest rates are fixed at zero (in Europe, the overnight right is zero, so you are actually punished for saving to the extent that they charge you to save money!). That pushes people into riskier and riskier assets and it has created a huge multi-asset bubble that has been poised to burst.

Look at the stock market the last few years. Or high-yield corporate bonds (the riskiest companies, which should have trouble finding lenders). The art market. The rare wine market. The real estate market in Manhattan or San Francisco. They have all gone through the roof. It costs nothing to borrow because these policies have rigged rates, and the Fed is pumping that money into the pockets of wealthy people (via JP Morgan, Goldman Sachs, etc. and the handful of banks they effect monetary policy through). And that money has gone right into every kind speculative thing you can think of -- including some private equity and debt darlings, such as Uber.

Think about it just in terms of the stock market. Look at how much the S&P 500 has gained the last few years. Yet, in unmanipulated markets, earnings are what should drive stock prices. Everyone on here knows that many people are still struggling. We have never gotten a decent recovery and we are nowhere where we were in 2007. Yet, stock prices keep going up. How does that make sense? It is largely because of financial engineering. Companies are borrowing (it costs nothing thanks to the Fed) and using that money to do things like stock buybacks, which in turn drive stock prices up (the earnings per share increases are because of the "per share" part, not because of actual "earnings.")

At the same time, what the Federal Reserve is doing is inflating away our government debt, which politicians love. It keeps us from defaulting and actually it has enabled even more debt -- they get to keep spending. That policy also exports inflation abroad. And that has created a massive currency war that is in full rage right now, where the world's central banks are taking turns trying to devalue their currencies (i.e. printing money, which just exacerbates what I am describing). The Bank of Japan has gone insane with its asset buying. The ECB has been hinting at it (which drove the Euro down over the last few months) as most of Europe is in an economic malaise. A lot of their money has found its way to U.S. equity markets.

Nobody has the fortitude to do the necessary thing -- back away and let the markets operate without the manipulation -- because they don't want to face the consequences of all the debt they created in the first place that nobody will ever be able to pay back. That will have to mean a short-term economic drubbing. The flip side, is that by doing more of the same, they make the future drubbing that much worse.

They are causing more and more indebtedness on top of what was already massive indebtedness, and manipulating their currencies to try to stave off default, so we are staring at a global financial system that is a ticking time bomb well beyond what we would have faced in 2008 if they had let the defaults just happen.

So. ... Uber is symptomatic of the malinvestment that the world's central banks have caused. The inflation you are seeing is showing itself in the price people who the Fed is benefiting (anyone with money, really) are willing to pay for Uber (and a lot of other things that I think are eventually going to have to crash). It's the same as the malinvestment that caused the dot-com problems in 2000 that Alan Greenspan caused when the Fed was downright quaint compared to how hamhanded it has become in its manipulation of our markets. They are doing wilder and wilder experiments that they can't control -- rather than dealing with the reality of what they caused. Uber is the extreme example of what you can see in a lot of private equity situations and in a ton of publicly-traded companies that have little by way of earnings and trade at ridiculous multiples. But you see it as bad in lots of places -- biotech companies, for example, which have been in a multiyear frenzy. The whole thing won't end well. Even if Uber can grow, and survive, any possible future earnings are already baked into it -- plus billions of dollars more of earnings that it will never realistically see anytime soon. If it can't execute, obviously some people are going to lose a ton of money. Put it in the perspective of all of the malinvestment out there, and you'll see the giant bubble pop I think is inevitable across even more asset classes than you saw in 2008.

 

I have. No one read them either.

 

Most money managers will acknowledge that the risk everyone is taking is off the charts right now. At least ones who aren't delusional. But you have to look at it from their perspective. ... If you run a hedge fund or a mutual fund, you can keep your assets safe, but you will be losing money in real terms. Retirees and savers are getting killed in this environment. There is no safe yield to be had thanks to the Fed.

If you manage money and you have your assets sitting in dollars in a mattress, the Fed is creating monetary inflation. So you're not just missing in terms of the opportunity cost of owning stocks when they have been way up the last few years. Your cash is eroding in value at the suppressed interest rates the Fed has brought about.

Their alternative choices are all risk markets an investor would normally compare on a risk / reward basis, usually trying to find hidden value. Sometimes those markets are great bargains when valuations are depressed. But right now a lot of people will acknowledge that there are no bargains to be had. Prices have just been up, up, up and there is nothing fundamental justifying it. It's just asset inflation caused by the printing press.

If you manage a fund and you haven't been making double digit returns (and many haven't been, because they realize to do it you are playing a game of chicken and they were actually prudent. But that has been a problem to explain to your investors) you are stuck explaining why you don't own Apple stock when the price has run up and why you don't own Tesla stock and Alibaba stock and why you haven't been loaded up on junk bonds. I think they feel like they have no choice. They get paid to put that money to work, and most people won't accept the reason for not putting it to work that things are way too overvalued. So many are just following the momentum and hoping they can get out in time.