Saturday, December 28, 2019

How Machines Are Taking Over the World's Stock Markets

More and more algorithms running stock markets. They can only be as accurate as the people that program them.... Aivars Lode

Ke Jie was once the world’s best player of the most complex game ever invented, an ancient Chinese board game called Go. But, in 2017, Ke was beaten by a computer program that had taught itself how to the play the game Ke had spent most of his life mastering.
The robotic victory marked a watershed moment for artificial intelligence (AI) and machine learning technology—a subset of AI whereby a computer learns to perform a task without being explicitly programmed to complete it, instead learning and improving from experience.
Now the technology is being applied in industries from transport, where algorithms are being used to teach self-driving cars how to navigate busy city streets, to health care, where robots are learning to diagnose and treat patients. And in finance, increasingly, these technologies are making decisions about what stocks to buy and sell.

Marcos López de Prado has been at the forefront of machine learning innovation in finance. The New-York based Spaniard was the first-ever head of machine learning at AQR, one of the world’s largest investment management firms, before he left earlier this year to start his own firm, which sells machine learning expertise and algorithms to Wall Street.
The finance pioneer literally wrote the book on the use of machine learning in investing (his 400-page textbook Advances in Financial Machine Learning is included in the curriculum of several graduate school courses), and he was named the 2019 “Quant of the Year” by the Journal of Portfolio Management.
TIME sat down with López de Prado when he visited Hong Kong recently. Here’s what one of the world’s top quants has to say about how robots are taking over global financial markets, and his great hopes for the technology.

Sunday, December 15, 2019

The Money Men Who Enabled Adam Neumann and the WeWork Debacle

The WeWork saga will continue to be a topic for some time. This is how it all unfolded.... Aivars Lode
In early October, WeWork’s board of directors trickled into a brick building in lower Manhattan where the startup had an office. After they took their seats around the conference room table, Mark Schwartz started to vent.
“I’ve stayed silent too long,” the 65-year-old former Goldman Sachs Group Inc. partner told the six other men on the board, including WeWork’s co-founder and chairman, Adam Neumann.
Mr. Schwartz aired his frustrations about the state of the company, which was perilously low on cash after years of freewheeling spending and had become the butt of jokes on Wall Street, according to people familiar with the meeting.
No more fantasies, he said, as advisers and others looked on. Now, he said, they needed to make decisions that would save the company.
Even more remarkable than the content of Mr. Schwartz’s blistering rebuke was the fact that it came so late. The banker had stayed silent so long that the story was almost over.
We Co., as the parent company is officially known, was already a distressed asset by then, undone by conflicts and the dawning realization that it was just a hip real-estate sublessor—not a tech company. A few weeks earlier, WeWork had shelved its disastrous attempt at an initial public offering and Mr. Neumann had subsequently stepped down as chief executive.
It was a spectacular fall for the company that months before had been America’s most valuable startup.
Little of WeWork’s trajectory would have been possible were it not for the collection of veteran executives and financiers from the upper echelons of Wall Street and Silicon Valley who enabled Mr. Neumann, a charismatic 40-year-old with little prior business experience.
Mr. Neumann mesmerized them with his pitch, which offered a vision for the property-leasing company as a tech startup with limitless potential to transform how people work and live.
Investors poured capital onto Mr. Neumann’s business bonfire and ceded control, rarely pushing back with any force despite mounting problems and year after year of missed projections.
Masayoshi Son, the CEO of SoftBank Group Corp., who helped inflate WeWork’s valuation to $47 billion, pushed an already wild-spending Mr. Neumann to act bigger and crazier. JPMorgan Chase & Co. CEO James Dimon and other bankers, instead of injecting a dose of reality, spent years championing Mr. Neumann and the company as they battled for the coveted IPO assignment.
The outside board directors, all of whom had decades of experience in business and finance, voted for years to approve decisions by Mr. Neumann that paved the way for WeWork’s near collapse. Some of them had potential conflicts of interest themselves. 
The directors on the board let Mr. Neumann personally buy stakes in buildings that he would lease to WeWork. They gave him long-term voting control of the company in 2014, and allowed him to sell and borrow more than $1 billion against his WeWork stake. They approved hundreds of millions of dollars for acquisitions of tech companies that were viewed by top executives as wasteful spending, with little relation to WeWork’s core business.
The end result didn’t just blow up $39 billion of the company’s value, roughly the value of Delta Air Lines Inc. It was a watershed moment for Silicon Valley. For years, investors salivated over all-powerful founders who promised disruption and demanded control. After WeWork’s spectacular flameout, investors have grown skeptical of the model.
In the moment, there was little debate following Mr. Schwartz’s remarks in the Oct. 3 meeting. The company needed funds to avoid running out of money by the second week of November. 
Mr. Neumann, who had repeatedly skipped board meetings, including as the company was planning the IPO, urged the board to move quickly. They needed to save the company and that was all that mattered, he said.

Wednesday, December 4, 2019

The World May Have a Bigger Problem Than a Potential Recession

Interesting reading. We have a bi-polar economy... Aivars Lode

The global economy is stuck in a rut that it won’t exit unless governments revolutionize policies and how they invest, rather than just hoping for a cyclical upswing, the OECD said.
The latest outlook and policy prescriptions from the Paris-based group mark a step beyond its repeated warnings about threats to growth from U.S.-China tensions, weak investment and trade flows. Those remain, but it also flags more systemic challenges from climate change, technology and the fact that the trade war is just part of a bigger shift in the global order.
For OECD Chief Economist Laurence Boone, the worry is that the world could continue to suffer in the decades to come if authorities offer short-term fiscal and monetary fixes as the only response.

“The biggest concern… is that the deterioration of the outlook continues unabated, reflecting unaddressed structural changes more than any cyclical shock,” Boone said. “It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary and fiscal policy: they are structural.”
The pessimism about the deep seated problems in the global economy contrasts with more upbeat signals coming from financial markets, where investors are increasingly betting on an upswing next year depending on the latest twists in trade talks.
Morgan Stanley sees a pickup in global growth from early next year, though risks are still skewed to the downside, while Goldman Sachs says better trade policy news recently means the drag on world growth should ease.
The OECD sees global growth stuck at 2.9% this year and next, and rising slightly to 3% in 2021. It lowered its 2019 U.S. forecast to 2.3% from 2.4% previously, and left 2020 at 2%.
On trade, the OECD said the risk of further escalation of tensions is a “serious concern.” More worrying, even if recent restrictions were reversed, uncertainties could linger. That would weigh on business investment growth in major advanced economies, which the OECD expects to slow to about 1.25% a year from close to 2% in 2018.
The entrenched trade and investment challenges mean governments must make deeper changes beyond simply rolling back tariffs of the last two years. This could mean updating global rules and reducing subsidies with harmful effects on trade, the OECD said.
It urged a similarly profound rethink of environmental policies amid bushfires in Australia and flooding in Venice that some have linked to climate change. The backlash against carbon emissions has even led to protest movements such as “flight shaming.”
Beyond how climate events harm the economy, how governments regulate and respond is also having an impact. Without clear policy on issues like carbon tax, the delays to business investment have “dire consequences for growth and employment,” Boone said.
While fiscal stimulus could provide a short-term boost, the OECD said the focus should be on the long term, such as through dedicated investment funds.
“The situation remains inherently fragile, and structural challenges are daunting,” Boone said. “There is a unique window of opportunity to avoid a stagnation that would harm most people: restore certainty and invest for the benefit of all.”
By William Horobin - Bloomberg

Sunday, November 10, 2019

As WeWork Grew, Wall Street Lent It Money and Credibility

Here is the low down on how the banks helped promote WeWork to its place of disintegration.... Aivars Lode

Banks jockeying for a role in WeWork’s public debut wooed founder Adam Neumann with sky-high valuations that would make him a billionaire many times over. Their loans to the company told a different story.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks arranged giant fees and strict protections that reflected their concerns about WeWork’s unproven business model and Mr. Neumann’s unpredictable behavior.
When Wells Fargo & Co. signed on to a $6 billion loan earlier this year, Mr. Neumann said: “If the largest lender in this country can get comfortable with this, then everybody should.”
Yet Wells Fargo, the fourth-largest U.S. bank, only started lending to WeWork after an executive at the bank promised to keep an eye on Mr. Neumann, according to people familiar with the matter.
Banks harbored significant doubts about We Co., as the WeWork parent is known, even as they pitched its stock to investors, according to interviews and documents reviewed by The Wall Street Journal. Running out of cash, the company was rescued last month by Japanese conglomerate SoftBank Group Corp. in a deal that bounced Mr. Neumann.
WeWork’s unraveling has hit hardest the wallets and reputations of SoftBank and other venture-capital investors who enabled Mr. Neumann and his company’s rise. But with its money and credibility, Wall Street also fed the company’s breakneck growth and its image as a superhot technology company.

Choosing the Right Earnings Day is a Complex Task for Finance Executives

Picking when to report sounds like CFO’s have something to hide. Most notable reading: Jefferies, Wells Fargo, Citi and JP Morgan analyst tech reports... the majority sound like they are making an excuse for lack of performance.... Aivars Lode

Thursday was the most popular day to report financial results this earnings season. And, for some companies, that might have been a good thing.
Deciding when to report financial performance increasingly involves a deliberate weighing of regulations, executive travel plans and the timing of competitors’ reports, all in an effort to maximize—or perhaps avoid—attention from analysts and investors.
“Investors are paying close attention to when companies release earnings,” said Sandy Peters, the head of financial reporting policy at the CFA Institute. “That’s something that CFOs and heads of investor relations should factor into their thought process.”
On Thursday, over 420 companies listed in the U.S. released earnings, which might have been good or bad, depending on the company, according to Wall Street Horizon Inc., a data provider that tracks over 7,500 companies globally.
Reporting on a busy day can make it easier for companies to hide disappointing results amid a tsunami of information from other businesses. But a small company with good news to present might be overlooked by the volume of corporate behemoths reporting on the same day.

Thursday, November 7, 2019

Analysts stay Stay Selective in Software

Stay selective is what the analysts are now saying relative to tech stock valuations... Aivars Lode

Jefferies Equity Research: Stay Selective within the Space. 
High growth software valuations are now trading above terminal M&A multiples, suggesting we still have more room for multiple contraction. We expect that the short-term correction will continue given multiples remain elevated even with the recent correction. We would avoid the 15-20x multiple names until we see a broader pullback. We favor platform names with attractive growth and reasonable valuations like MSFT, CRM, INTU, SPLK, and PANW. We also favor names like SAIL and VRNS that have the potential for rev. reacceleration over the next yr. 

SoftBank Founder Calls His Judgment ‘Really Bad’ After $4.7 Billion WeWork Hit

I am sure that this is only the beginning of other massive write-offs similar to the dot-com era in the early 2000’s... Aivars Lode

TOKYO— Masayoshi Son, the billionaire founder of SoftBank Group Corp. , said Wednesday his “really bad” judgment championing U.S. office-sharing company WeWork left the Japanese conglomerate and its massive tech-investment fund with the biggest quarterly loss in its 38-year history.
Standing in front of a screen projection of stormy seas and dire Japanese-language headlines, Mr. Son told a news conference in Tokyo that he had made serious errors in judgment that led the group to post earnings “of the deepest red.”
SoftBank and the Vision Fund wrote down the value of their WeWork stakes by $4.7 billion and $3.5 billion, respectively. The $100 billion Vision Fund also wrote down the value of its holdings in U.S. ride-hailing company Uber Technologies Inc. and about 20 other investments, leading to an operating loss—the fund’s first—of nearly $9 billion for the quarter, and a group-wide net loss of $6.4 billion.
“My own investment judgment was really bad. I regret it in many ways,” Mr. Son said.
Mr. Son is fighting to preserve his reputation as one of the world’s savviest and most influential technology investors after the spectacular collapse of one of his most prized portfolio companies and the tumble in value of several others.

Monday, November 4, 2019

Large Bitcoin Player Manipulated Price Sharply Higher, Study Say

Well this is consistent with what I wrote about on manipulation of markets and commodities in my first book. Yet another manipulated market.  See my previous blog on bitcoin published April 5, 2013..... Aivars Lode

A single large player manipulated the price of bitcoin as it ran up to a peak of nearly $20,000 two years ago, a new study concludes.
The study reviewed the period between March 2017 and March 2018, when the price of bitcoin soared and its total market value rose to $326 billion. About half of that increase was due to the influence of a manipulation scheme, according to the study’s authors.
They said the unknown manipulator operated from a single account at Bitfinex, the largest cryptocurrency exchange at the time. The manipulator used another cryptocurrency, called tether, to boost demand for bitcoin, leading to the price surge.
It isn’t clear by how much or if the manipulator profited. Bitcoin traded at nearly $9,200 on Sunday.
The study—written by John M. Griffin, a finance professor at the University of Texas with a background in forensics, and Ohio State University finance professor Amin Shams —was accepted for publication by the influential Journal of Finance and will be published online Monday. An earlier version of the study argued tether was being used to manipulate bitcoin prices, but didn’t connect the scheme to one entity.
The paper doesn’t definitively conclude who the manipulator was. But it strongly suggests Bitfinex executives either knew of the scheme or were aiding it.
“If it’s not Bitfinex,” Mr. Griffin said in an interview, “it’s somebody they do business with very frequently.”

Sunday, November 3, 2019

Adam Neumann, the Boy Who Burst the Unicorn Bubble

Again I ask ....Will this be the end of Unicorns?  ....Aivars Lode

At the tail end of every bubble there is always one company whose story is so insane that people wonder in hindsight how anyone could have thought it ever made sense. Step forward We and Adam Neumann (via )
Click to Read the Bloomberg article here

Friday, November 1, 2019

Bill Ackman believes WeWork is worth ‘zero,’ report says

The continuing saga of WE WORK, now some are calling for it to be worth ZERO! How much skittishness will this cause in tech market valuations?   ....Aivars Lode

Hedge fund manager Bill Ackman reportedly thinks WeWork could be worthless, noting Japanese investment giant SoftBank “should have walked away” from it.
“I think WeWork has a pretty high probability of being a zero for the equity, as well as for the debt,” Ackman, founder of hedge fund Pershing Square Capital Management, said at the Robin Hood investor conference on Tuesday, according to the Financial Times. “As someone who has put good money after bad, I think this looks like putting good money after bad.”
Pershing Square could not be reached for comment.
WeWork recently shelved its plans to go public as the shared-workspace company failed to drum up demand for its IPO. Soon after, the company faced questions about its valuation, which once ranged between $60 billion and $90 billion.
Last week, SoftBank agreed to take an 80% stake in WeWork and announced a $5 billion financing package in an effort to turn around the company.

By Fred Imbert - CNBC

Thursday, October 31, 2019

Yum’s Profit Pressured by Investment in Grubhub

I previously commented on the viability of Grubhub and now Grubhub's demise has dragged down the earnings of Yum.... Aivars Lode


Yum Brands Inc. marked down the value of its investment in Grubhub Inc., a move that hurt the restaurant chain’s third-quarter profit but doesn’t reflect the recent major selloff in shares of the delivery service. 
The owner of the KFC, Taco Bell and Pizza Hut restaurant chains on Wednesday said it recorded a $60 million pretax expense tied to its bet on the delivery service, a move that sliced off 15 cents from its earnings per share for the quarter. 
That markdown reflected Yum’s valuation of the investment as of the end of September, according to a spokeswoman. In February of last year, the company agreed to pay $200 million to take what was then a 3% stake in Grubhub to bolster its delivery business. The deal was completed in April. 
Grubhub shares plunged 43% on Tuesday after the Chicago-based company on Monday issued a downbeat forecast for sales and profits, warning about competition among delivery services and slowing growth in the sector. 
Shares of Yum fell 5% in premarket trading. 
Yum on Wednesday reported global same-store sales, or sales from locations open for at least a year, rose 3% in the quarter. 
Same-store sales increased 3% in the KFC business and 4% at Taco Bell, Yum said. Pizza Hut’s had flat same-store sales. System sales in the U.S. at Pizza Hut restaurants dropped 2% in the quarter. 
“There is always unfinished business,” Chief Executive Greg Creed told analysts. “This unfinished business is probably most pronounced at Pizza Hut U.S.”
Yum, based in Louisville, Ky., reported quarterly net income fell to $255 million, or 81 cents a share, from $454 million, or $1.40 a share, in the same quarter last year.
General and administrative expenses increased 2%, while costs covering franchise advertising and services jumped 13%.
Total revenue slipped 4% from the year earlier, to $1.34 billion, the company said, in line with expectations from analysts.
By Micah Maidenberg - WallStreet Journal

Bull or Bear?

Can you guess if this is written by a bear or bull thinker?   ....Aivars Lode

Black Thursday
Last Thursday was the 90th anniversary of Black Thursday, the day the Great Crash of 1929 began with a fall of 11%. The following week there was Black Monday (down 13%), and then Black Tuesday (another 12%). After a bear market rally lasting about five months, the market resumed its slide and the Dow Jones Industrial Average bottomed at 41.22 on July 8, 1932 – down 89% from the September 2919 peak.
For those who haven’t read it here are a couple of extracts from the short book “The Great Crash” by Thomas Fleming, which described in dramatic detail what happened on that first day.
“For the first half hour on that fateful Thursday, prices were steady. But good stocks were being offered in large blocks, often a sign of trouble. Six thousand shares of Montgomery Ward changed hands at eighty-three. (A few short months before, it had been selling at 183.) Then came 20,000 shares of Kennecott Copper, 20,000 shares of General Motors, 15,000 of Sinclair Oil, 13,000 of Packard Motors. By eleven o’clock, the ticker was behind more than thirty minutes. Suddenly there was raw panic everywhere, panic wilder than anything ever seen in the long history of the Exchange. “Sell at market” resounded throughout brokers’ offices, as speculators clutched frantically at paper profits that were being shredded before their horrified eyes.
“By 11:30, the ticker was forty-seven minutes late, and the floor of the Stock Exchange was a wild melee. According to the rules, the traders might not run, curse, push, or go coatless. But they could shout their orders, and shout they did, especially around post number two, where steel was traded. It was, according to one eyewitness, “the center of a sort of madness.”
“Those on the floor at least had the cold comfort of knowing what the quotations were. Outside, as the ticker slipped steadily behind, ignorance added to the mounting terror. Ordinarily, the alert speculator was never more than a few minutes away from a ticker during trading hours and could tell at a glance what the magic numbers meant, although the Exchange omitted all.
“More than 700 people soon jammed the Exchange galleries. (One visitor was Winston Churchill, Great Britain’s former Chancellor of the Exchequer, who was touring the United States as a lecturer during one of his political limbos.) At 12:30, officials closed the galleries, in a small attempt to cut off one avenue of panic. It was a feckless gesture. Outside on Broad Street, a “weird roar” rose from an already immense crowd. Police Commissioner Grover Whalen hastily dispatched extra policemen to the scene to keep order. But they were unnecessary. The only thing wild about the crowd was the rumors sweeping it. Supposedly, eleven speculators had already killed themselves. The Chicago and Buffalo stock exchanges had closed. When a workman appeared on top of a nearby building, the crowd immediately surged in his direction, waiting for him to jump.”
A few points to make about all this as it relates to today:
  1. Slow tickers adding to the fear are a thing of the past. Slow information was a factor in the crash of 1987, and to a small extent in 2000, but not in 2008. So crashes are still possible in the age of instant digital information.
  2. The Dow Jones Industrial Average peaked at 381.17 on September 3, 1929. Five years before that it was 100, so an increase of 281%. In the past five years, the Dow Jones has increased from 17,390 to 26,833 – 54%.
  3. The average PE ratio of the market in September 1929 was 32.6 times. It’s currently under 20. Here’s a chart of it:

  4. The Federal Reserve helped cause the crash by raising the discount rate in August 1929 to 6%, but did little to alleviate the crisis afterwards. The New York Fed bought government bonds to maintain liquidity, but it was criticised by the Federal Reserve Board in Washington and other state Feds for exceeding its authority. Apart from that, the Fed did nothing.
Ninety years later, the market is not up very much nor excessively over-valued and the Fed is cutting rates, not raising them. What’s more, the Fed – all central banks in fact – have become activist institutions, prepared to take interest rates below zero and to print trillions of dollars in the event of a crisis to prevent a recession, let alone a Depression.
So yes, it’s different this time.

Tuesday, October 29, 2019

Grubhub Shares Fall After Downbeat Outlook

As explained in previous posts the numbers just do not lie and do not work... Aivars Lode

Grubhub Inc. shares headed toward their biggest one-day decline ever Tuesday, underlining intensifying concerns among investors over the future of the food-delivery industry.
Shares slumped 43%, on track to close at their lowest level in more than two years.
The rout began late Monday after the Chicago-based company cut its outlook for revenue and profit, citing the need to spend more on promotions to draw in customers.
Both analysts and company executives have for years warned that increasing competition among restaurants and delivery apps for customers’ dollars would eventually force a shakeout in the industry. Grubhub Chief Executive Matt Maloney suggested competition was heating up and said that raising funds was also becoming tougher with the fall of startup WeWork making private investors skittish.
“Right now, we are in a weird bubble that is about to burst,” Mr. Maloney said in an interview with The Wall Street Journal Monday.
Analysts quickly slashed their ratings for the stock, with Bank of America Corp. and Oppenheimer & Co. both flipping from “buy” to “sell” recommendations.
“The food delivery market is increasingly irrational as competitors flood the market with rewards and incentives, making online diners less loyal,” said Nat Schindler, a Bank of America analyst, in a note. Rising pressures among delivery services to offer incentives are likely to not only increase the cost of attracting diners, but also potentially reduce the number of repeat orders, Mr. Schindler said.
Shares of other startups that have made their debuts in the public markets in recent years took a hit Tuesday, with Uber Technologies Inc. down 2.7%, Spotify Technology SA down 3.2% and Beyond Meat Inc. down 19%. That was even as the S&P 500 edged up 0.1%.
By Akane Otani - Wall Street Journal

Monday, October 28, 2019

SoftBank Vision Fund Planning Writedown of Over $5 Billion

Not looking too smart now..... Aivars Lode

Bloomberg tweeted: SoftBank is planning to take a writedown of at least $5 billion to reflect a plunge in the value of some of its biggest holdings, including WeWork and Uber, sources say

Thursday, October 24, 2019

Valuation Lesson 101 - 25x Doesn't Last for Long

Now you have the analysts starting to say that tech stocks are overvalued and that there will be a downdraught. Watch the pace of this news start to spread. Along with crazy payouts of the founder of WeWork, investors are going to get even more jittery....  Aivars Lode

Key Takeaway from a Jefferies Equity Research Report
History is the best teacher when it comes to stock valuations. We analyzed the historical multiples for two names across time - WDAY and SPLK. Their peak multiples (both about 25x) in Feb. 2014 lasted for a nano second, followed by a painful ride to the trough in Feb. 2016. As such, we would keep an eye on the high flyers in software and expect the downdraft in valuations to continue. We quantify the downside risk across our coverage universe below.

Click to read full report here

Wednesday, October 23, 2019

Why WeWork founder Adam Neumann is getting $1.7 billion to leave the company he ran into the ground

Whenever something does not smell right, it usually is not right. I suspect the back story here is that Softbank is trying to stop a run on all of its other investments. Softbank's founder lost a heap in the Bitcoin space and now We Work. Which of their investments is next to crash in value?

This isn’t normal, but nothing about WeWork is normal.

WeWork founder and former CEO Adam Neumann drove his coworking company’s valuation to a whopping $47 billion by selling investors on his personality and the idea that he was revolutionizing real estate through tech. He also steered the company — through a series of poor and avoidable decisions — into near oblivion. Now the company’s biggest investor, SoftBank, is paying him $1.7 billion to leave the company and most of his stock behind. 
That means, as Recode’s Pivot podcast co-host Scott Galloway pointed out, Neumann is getting about $850,000 for each of the 2,000 employees WeWork is expected to lay off — it just hasn’t done so yet because it couldn’t afford the severance
Screwing up never felt so good.
“I’ve never seen such a massive consulting fee for someone who is walking away,” Evan Epstein, founder of the corporate governance firm Pacifica Global, told Recode, referring to tech startups. “It’s extraordinary that he walks away with billions of dollars in a situation where maybe the company is imploding and it’s losing value at the rate it is.” 

Corporate debt defaults predicted to increase

More talk of recession.  This time bankers are expecting more defaults on debt 
....Aivars Lode


According to a survey, over two-thirds of credit portfolio managers expect corporate defaults to increase globally over the next 12 months, a significant sign of an economic slowdown.
Among surveyed managers, 75% believe defaults will increase in Europe and 74% believe defaults will increase in North America over the next 12 months, according to a third-quarter survey by the International Association of Credit Portfolio Managers.
The Aggregate Credit Default Outlook index for the next 12 months fell to -56.2 in the most recent survey, down from -45.4 in the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
Managers are most pessimistic about North America and Europe, which each had an index of -66.7. In the previous quarter, North America's index was -59.5, while Europe's was -42.4.
"I think there's increasing consensus that things are looking worse," said Som-lok Leung, IACPM's executive director, in an interview. "Not everyone is using the word 'recession' yet, but definitely using the word 'slowdown.' "

Tuesday, October 22, 2019

WeWork’s Valuation Falls to $8 Billion Under SoftBank Rescue Offer

The news just keeps on getting worse and this will bleed over the other unicorns ....Aivars Lode

WeWork’s board is expected to meet Tuesday to weigh emergency-financing options including a takeover by SoftBank Group Corp. that would slash the co-working company’s valuation to about $8 billion and alleviate a looming cash crunch. 
Ahead of a Monday deadline to submit bids, SoftBank has offered to lend $5 billion to the struggling startup and accelerate a $1.5 billion equity investment that had been scheduled for next year, people familiar with the matter said. SoftBank also would offer to buy more than $1 billion of stock from existing investors and employees, some of the people said. The moves would boost its equity ownership above 50%.
JPMorgan Chase & Co. plans to submit a competing $5 billion debt package backstopped by the bank that would bring together a group of outside investors including Barry Sternlicht’s Starwood Capital Group.
A special committee of WeWork’s board is expected to reach a decision on which bid to accept this week.

Monday, October 21, 2019

Grubhub’s Struggles Could Chill Food Delivery Hype

About 5 years ago I was speaking on the phone to a Russian investor (whilst he was on his yacht in the bay of St Tropez) and he was telling me what amazing investment opportunities these food delivery companies were. When I started asking how many deliveries they did per hour, he told me two (2). I said "short the stock!"  Oh darn... could not short the stock as it was private. In the DOT com era I saw the same thing whilst I was running Descartes Systems Group, a supply chain optimization company. We had mathematics and finance experts that would run numbers on how our software could optimize delivery and guess what?  Back then, same as now, the food delivery businesses were always money losing businesses!     ....Aivars Lode

News flash: Making money suddenly matters in tech. That is bad news for any company competing in a sector filled with rivals desperate to gain scale, such as food delivery, and could leave Grubhub investors with a bitter aftertaste.
Venture capitalists have, in a matter of months, gone from trumpeting growth at all costs to evangelizing a new ethos that includes terms including “discipline,” “unit economics” and, perhaps most important, “profitability.” The dramatic change in tune has come in the midst of an icy reception from public investors to cash-burning companies like Uber, Lyft, WeWork andPeloton, which were all hotly anticipated by public investors just months ago.
Grubhub has shed 53% of its market value over the past year and 26% over the past three months alone. Those losses have come as a direct result of competitors’ growth. Earlier this month, Edison Trends released data showing Grubhub’s commanding market share lead has been cannibalized over the past 18 months by Uber Eats and the new market leader, DoorDash, which led Grubhub by 11 percentage points of market share as of September.
Eating ProfitsGrubhub's quarterly net income.Source: FactSetNote: Chart reflects GAAP net income
.million2015’16’17’18’19-1001020304050$60
While losing its stranglehold on the market, Grubhub has also become less profitable. Net income fell from $54 million in the fourth quarter of 2017 to a loss of $5 million during the same period of 2018, according to FactSet, marking Grubhub’s first net loss as a public company. And while the company said after its first-quarter report this year that it would be disciplined about spending despite heavy competition, profits haven’t exactly come roaring back. Not only does Grubhub appear to have lost market share over the past few months, but analysts polled by FactSet expect the company to deliver net income of just $2 million in what is a seasonally weak third quarter, down more than 90% year-over-year.
It could get worse. Grubhub and its competitors have lately caught regulators’ attention for the steep cuts they charge restaurant customers in key geographies such as New York City. There, the City Council’s small-business committee is considering a cap on commission fees that could disproportionately weigh on Grubhub’s bottom line given that it is the largest delivery platform in New York City by far. Second Measure data from August shows Grubhub handles 71% of third-party delivery sales in that market.
As the only publicly traded pure play in the industry, Grubhub’s shares are a barometer of the market’s views on the economics of food delivery. Clearly they reflect doubts even as the business has grown overall. They will likely continue to do so until Grubhub and its competitors can master a more palatable recipe for profitability and growth.
By Laura Forman - Wall Street Journal