Scrapping the IPO may be WeWork’s best option
WeWork is talking with its advisers and shareholders, including its largest, the SoftBank Vision Fund, about whether or not to move ahead with its IPO later this month, according to people familiar with the matter. No decision has been made…The discussions about how to proceed follow the realization that public markets will initially value We at a much lower valuation than the company’s last private financing round…That’s at least $22 billion less than WeWork’s $47 billion private valuation…The fundamental reason to go public is, of course, to access capital. If SoftBank won’t provide WeWork with billions more to help sustain its private valuation, WeWork may have no choice but to move forward with its IPO…Market timing is another quandary. If the U.S. is headed toward a recession, it might make sense WeWork to go public now, before the so-called IPO window closes…Large institutional buyers have already made a decision on WeWork, with its 12-month trailing $1.7 billion loss as of the end of June, its $47.2 billion in lease payment obligations, and its attempt at creating a new financial metric of community adjusted Ebitda. And the verdict from those buyers is “pass.” The “coming recession” argument is as much of an argument for delay as it is for charging forward…WeWork could also change its expansion and capital expenditure targets by staying private, allowing it to grow without needing as much extra funding…SoftBank’s Vision Fund is supposed to be all about long-term investments…SoftBank may decide to add billions more as a capital injection to support its own inflated valuation of WeWork…In the end, a go-or-no-go decision may be made by just how poorly advisers expect an IPO will go. WeWork has expected to begin its roadshow as soon as next week. A 50% cut in valuation isn’t a good sign. Even worse, it may kill a 2019 IPO.
Central Banks Are Losing Ability to Reverse Downturns
“Ray Dalio thinks the ability of central banks to reverse an economic downturn is coming to an end as the global economy enters what he says are the late stages of the long-term debt cycle. ‘Interest rates get so low that lowering them enough to stimulate growth doesn’t work well,’ the billionaire founder of investment management firm Bridgewater Associates wrote in an essay published on LinkedIn on Wednesday. Money printing and buying financial assets won’t work either, Dalio said, as it doesn’t produce adequate credit in the real economy and creates the need for large budget deficits and then their monetization….U.S. President Donald Trump on Wednesday renewed criticism of the Federal Reserve, saying in a tweet that it had ‘no clue.’ Earlier this month, he said the bank needed to cut rates by at least 100 basis points.”
The Economic Future of a Negative Interest Rate World
“Danske Bank of Denmark introduces the first negative 10-year fixed-rate mortgage. The German Finance Ministry voices disappointment at the lack of demand for 30-year zero-coupon bonds. The U.S. and Sweden contemplate issuing 50-year and 100-year bonds. These are all cause for concern. Excessively low interest rates support assets, favor the rich over the poor, favor the rentier (a person living on income from property or investments) over the business investor, encourage leverage and stock buybacks over capital expenditure and equity-capital formation. Income inequality grows, and social instability follows. Corporations that, under a more normal interest rate regime, would have been placed into receivership are able to continue to operate….If an inverted yield curve is the harbinger of recession, there may be trouble ahead….The effect that an artificially low interest rate has on an economy is pernicious. Asset markets are supported, and it raises the point at which they clear, but it also reduces the need for companies to improve internal efficiency. For corporates, borrowing becomes preferable to issuing equity. Firms become more leveraged….For households, lower interest rates encourage borrowing to buy assets…With falling interest rates comes more affordable mortgage financing, boosting property prices….And what of the poor, the unemployed, those unable to clamber onto even the first rung of the property ladder? Populist politicians will seize the opportunity to pander to the dispossessed voter….In the thrall of negative interest rates there is a clear incentive to borrow and a disincentive to save. This is Ponzi finance; it has turned time preference on its head, driving us to borrow from tomorrow to consume today.”
Alan Greenspan says it’s ‘only a matter of time’ before negative rates spread to the US Source: CNBC
“It will not be long before the spread of negative interest rates reaches the U.S., former Federal Reserve Chairman Alan Greenspan said. ‘You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States,’ Greenspan told CNBC’s ‘Squawk on the Street’ on Wednesday. There are currently more than $16 trillion in negative-yielding debt instruments around the world as central banks try to ease monetary conditions to sustain the global economy….’We’re so used to the idea that we don’t have negative interest rates, but if you get a significant change in the attitude of the population, they look for coupon,’ Greenspan said. ‘As a result of that, there’s a tendency to disregard the fact that that has an effect in the net interest rate that they receive.’ He added that gold prices have been surging recently because people are looking for ‘hard’ assets they know are going to have value down the road as the population ages. Gold futures are up more than 21% in 2019 and are trading around levels not seen since 2013.”
Falling From Grace: The Decline Of The US Empire
Source: Zero Hedge
“If we observe the empires of the world that have existed over the millennia, we see a consistent history of collapse without renewal. Whether we’re looking at the Roman Empire, the Ottoman Empire, the Spanish Empire, or any other that’s existed at one time, history is remarkably consistent: The decline and fall of any empire never reverses itself; nor does the empire return, once it’s fallen….All empires follow the same cycle. They begin with a population that has a strong work ethic and is self-reliant. Those people organize to form a nation of great strength, based upon high productivity. This leads to expansion, generally based upon world trade. At some point, this gives rise to leaders who seek, not to work in partnership with other nations, but to dominate them, and of course, this is when a great nation becomes an empire. The twentieth century was the American century and the US went from victory to victory, expanding its power. But the decline began in the 1960s, when the US started to pursue unwinnable wars, began the destruction of its currency and began to expand its government into an all-powerful body. Still, this process tends to be protracted and the overall decline often takes decades….The US is presently in a state of suspended animation. It still appears to be a major force, but its buttresses are quietly disappearing…The final decline will occur with alarming speed.”
What Economic News Can You Trust?
“Traditional news may not be ‘fake’ per se, but people are right to remain suspicious of it…What people sense with the news is that it is not, in fact, trustworthy because the incentives of traditional news providers and their readers are not closely aligned, especially when it comes to economic and financial analysis. That has long been the case in television, hence the constant admonitions to trust newscasters, but today it is also the situation even for newspapers and magazines, as most of their revenue comes from advertisements rather than subscriptions….All the survivors of the great newspaper wars of the last several decades, WaPo, NYT, WSJ, LA Times, and so forth, diversify their page view portfolios by publishing articles along that spectrum….Even the accuracy of some government economic statistics (raw numbers) has been questioned, leading to sites like John Williams’ Shadow Government Statistics (which, not coincidentally, is subscription-based). Where else can people turn for news and analysis?….The most powerful independent sources of economic and financial analysis are therefore those backed by endowments, caches of cash-producing assets that allow them to pay smart people to think, research, and write without worrying about pleasing advertisers. Such sources, like Mercatus, the Independent Institute, and the AIER, still face economic realities like opportunity and sunk costs but they can provide a public good from a private source of funding dedicated, basically, to one thing – the Truth, insofar as our feeble human brains can ascertain and elucidate it. That is the closest alignment of incentives between author and audience that money can’t buy….Readers, viewers, and listeners should ask themselves if a particular article, segment, or podcast helped them to understand the world in a more nuanced, realistic way, if it helped them to an insight that made their lives better in some tangible way, like improved investment results or a more sophisticated view of a public policy. Such real world results can’t be faked.”
Investors Rush Into Gold
“Investors are going for gold in a big way. Inflows into bullion-backed exchange-traded funds topped 100 tons in August to hit the highest since February 2013 as the trade war worsened, risk assets took a knock, and central banks signaled looser monetary policy. Holdings rose 101.9 tons, bringing total known assets to 2,453.4 tons as of Friday, according to data compiled by Bloomberg. It was the third straight monthly increase. Bullion’s been on a tear, gaining 19% this year, as the global outlook worsened on the stand-off between the U.S. and China. Central bank-buying has provided another layer of support, and Goldman Sachs Group Inc. says prices are likely to advance further as official purchases continue and demand for ETFs rises.”
Gold Reminds Governments That They’re Still Not In Control
Source: Snyder/Real Clear Markets
“The Great Depression was a serious crisis no government let go to waste. Removing gold from the public’s hands, and relegating it to gold exchange in their hands, the process was set in motion. John Maynard Keynes had won the argument in the official realm; there would be governments through central banks who would control money – but only when they reasoned it was perfectly necessary. The market would be the market with the enlightened few over top to watch over everything. Elasticity at last. What neither Keynes nor his followers had anticipated was what the freedom would do in the private realm. In fact, Bretton Woods was carefully constructed so as to assure the world that gold exchange still functioned as an effective check on government irresponsibility….A dollar which used to mean ownership over a quantity of gold in American hands would come to mean nothing more than a stripped-down unit of account without any borders….As interest rates around the world collapse to new lows and new negative lows, the price of gold has skyrocketed…In that way, it may be the gold market which is having the last laugh. Keynes as others wanted to demonetize gold so as to give the government exclusive authority over money. But what gold is showing us today in 2019 is that they aren’t anywhere near being in control.”
It’s Never Too Late to Start a Brilliant Career
Source: Wall Street Journal
“Today we are madly obsessed with early achievement. We celebrate those who explode out of the gates, who scorch the SAT, get straight A’s in AP courses, win a spot at Harvard or Stanford, get a first job at Google or Goldman Sachs, and headline those ubiquitous 30-under-30 lists. But precocious achievement is the exception, not the norm. The fact is, we mature and develop at different rates. All of us will have multiple cognitive peaks throughout our lives, and the talents and passions that we have to offer can emerge across a range of personal circumstances, not just in formal educational settings focused on a few narrow criteria of achievement. Late bloomers are everywhere once you know to look for them…Early blooming is not a requirement for lifelong accomplishment and fulfillment….In a 2015 study published in the journal Psychological Science, neuroscientists Laura Germine and Joshua Hartshorne measured the abilities of nearly 50,000 adult subjects of various ages on online cognitive tests…Dr. Hartshorne summed up their conclusions; ‘There’s probably not one age at which you’re peak on most things, much less all of them.’….These findings validate what previous cognitive research has revealed: Each of us has two types of intelligence, known as fluid and crystallized. Fluid intelligence is our capacity to reason and solve novel problems, independent of knowledge from the past, and it peaks earlier in life. Crystallized intelligence is the ability to use skills, knowledge and experience; it shows rising levels of performance well into middle age and beyond. According to Georgia Tech psychology professor Phillip Ackerman, the best way for older adults to compensate for declines in youthful ‘fluid’ intelligence is to select jobs and goals that optimize their ‘crystallized’ knowledge and skills….Tales of late bloomers are found in every walk of life and often feature an under-appreciated talent that emerged more slowly than the standard expectations….Most people recently born will live into the 22nd century. The vast majority of us will be better served not by high SAT scores or STEM degrees but by discovering and embracing our true talents. A healthy society needs all of its people to recognize that they can bloom and re-bloom, grow and succeed throughout their lives.”
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