Economic Bubbles

A possible bubble clue – the quick and serial demise of me-too and also-ran organizations in multiple sectors

Posted on by Srihari Yamanoor
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This evening, I learned of the sudden closure of Chef’d, some run-of-the-mill boxed, meal-kit company via LinkedIn. Always on the look out for such interesting news, I checked it out. It looks like a couple of the companies are doing well, such as HelloFresh and Blue Apron. It appears they use a subscription model, and Chef’d did not.

And relatively cute-sounding start-ups like Sprig and Din apparently went out of business as well.

Of course, there is a lot of competition in this industry and n=3, a trend, may not make.

However, closer to the burst of a bubble, I assume we will such vaporization across multiple industries, first and foremost of the me-too, also-ran variety. So, the meal-kit industry appears to be going through an individual upheaval, truly sorrowful for the employees who work(ed) in it. However, the true signs would appear to be upheavals across the board, especially in industries that ought not to be facing ones, when an economy is perceived as being in good health. Like, retail’s problems may not indicate anything to us. But, a few other staple industries, not being disrupted by some unusual unicorns, might.

If I start seeing this, I will report back here. Do you think you have noticed this problem in the past few months?

References:

  1. Business Insider on Chef’d: http://www.businessinsider.com/chefd-shuts-down-2018-7
  2. Image, Courtesy Pexels: https://www.pexels.com/photo/food-salad-restaurant-person-5317/
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Brief: While we prepare for new tech bubble stories, here are stories on some old ones..

Posted on by Srihari Yamanoor
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Bubbles are not to be celebrated, unless you take pleasure from shorting on others’ misfortunes, or, you are a cat (raspy, grooming tongue-in-cheek reference with the image, if you get the next sentence). In any case, today, our friends at O’Reilly shared a link from “Mattermark” which linked stories such as the erstwhile failure of fame, pets.com and others we have heard but forgotten over the years..

No one can be blamed for fading memories, because after all, we have had our own Bear Stearns and Lehman Brothers in 2008 and are preparing for the next round, this time, not with mere cats or dogs, but UNICORNS!  Someone, I forget to remember who, also went on to create “bicorns” and “centicorns” in reference to the currently growing bubble with really expensive cat photo collectives and DIY Taxi cabs…

However, History can teach us a lot, so here is the link. I sampled a few, great read and needs bookmarking: https://mattermark.com/scenes-from-a-bust/?imm_mid=0e1760&cmp=em-iot-na-na-newsltr_20160310

Thanks O’Reilly and Mattermark!

Image Source: https://pixabay.com/en/cat-bubbles-animals-play-1198232/

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RBS to world: All hands on deck. Let’s panic!

Posted on by Srihari Yamanoor
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So, it appears many analysts in RBS (Royal Bank of Scotland) suffer so much from PTSD since the last financial disaster, they have now decided to express the most extreme negative reaction to everything that happens in the stock market (links referenced below).

So, on January 8th, while we were all wishing each other a much cliched TGIF, Andrew Roberts, whose humble title supposedly, is ” the head of European economics, rates and Central and Eastern Europe, Middle East and Africa research” at RBS decided to scare the living crap out of us all, by telling us to “sell everything or else…”

Great Wall

Yes, understandably, China has fallen by about 10% in about a week and the bottom is unknown. Yes, this has affected the global economy, even if the US economy remains unaffected by this, and in fact had its first rate increases in a decade or thereabouts. And yes, caution is important.

But sell EVERYTHING? Why not recommend something better? Such as a Market Neutral Investment Strategy? Or, a way to decouple or balance your effects on somewhat unrelated or fully unrelated economies?

And, please don’t tell me that you did not expect the very artificial Chinese economy to eventually fall. If you were paying attention last week, China tried to brake its fall with several more of its artificial measures, which only made things worse, so they finally gave up trying that. Maybe, they are just growing up. And if you did put your eggs in the Mandarin’s basket (which usually happens to be a very tough to access hole in the tree), it is time for you to grow up as well. Not call for all out panic!

Index Mania

Of course, all this doesn’t mean, we should not take a look at the possibility of a global slow down seriously. I learned with intrigue of this index called the “Baltic Dry Index” which apparently tracks changes in the prices of materials purchased in bulk, and things are seemingly not looking good. Take a look below:

Well, yes, what would you make of that? In a further explanation, the quoted US News Story (link below), states that, over the past 15 years, the index has fallen, only when the US or one of its major trading partners was in the midst of a recession.

Conclusion

I am only opposed to RBS’s manic reaction to the threat they see. I think the threat is real. Portions of the economy are riding through bubbles or hype cycles, globally and locally. In the US we have a tech bubble, which is yet to show any signs of slow down. We also have the 3D Printing industry (a write up is coming) which is finally coming off the high on its hype cycle, as other hapless souls across the planet climb on to that wagon pulled by a dying horse.

The threat is not a slowdown in the Chinese economy alone. The seemingly good Indian economy (something I question, given the real estate bust cycle they are riding over there, among other things) is sitting on a very lopsided 66:1 ratio against the US Dollar. The Indian and US economies are tied together. The bursting of the tech bubble here will have a direct impact on India, whose economy is quite unbalanced towards exports. Then there are large and small cycles, such as with either Oil on the large end (billions in profits have been wiped out recently in fluctuating oil prices which is still ongoing)  or with 3D Printers, where large (3D Systems and Stratasys) and small hype cycle riders are taking hits.

The question now is, will these crashes meld into a positive feedback system, or will we see a cascading effect, where the hits will come one after the other.

References: 

  1. The US News Article: http://www.usnews.com/news/articles/2016-01-12/sell-everything-at-beginning-of-cataclysmic-year-ahead-royal-bank-of-scotland-warns
  2. The WSJ Article: http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335
  3. Images courtesy of: https://www.pexels.com/

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Down Exits – they make the bubbles sticky

Posted on by Srihari Yamanoor
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ExitThat bubbles would be sticky is unscientific on its face, but I am speaking metaphorically here. When several companies “down exit”, that is sell for less than what they raise, it becomes harder to predict when the bubble will burst. Plus, it keeps the technology bubble going for a while longer, and thus my metaphor.

Just today, I saw a write up by CB Insights (link below) on two interesting pieces of information, one, of the exit of “Good Technology”, a company I came to know of just today (and I live in the Valley, making their rise and fall that much more interesting), and two, of the increasing trend towards “down exits”, or in plain English, companies that sell for less than they raised, resulting in a loss for the sellers, though curiously enough, some parties lose less than the rest.

Can Down Exits be predicted?

The downfall of anything can be a bit hard to predict. Apple and Facebook stock prices continue to perplex me. However, if you are diligent enough, you can never be 100% wrong, though the opposite is also true. I mean, Apple and Facebook prices will have to go down some day, with the latter being more or less worthless, no matter what stories of advertising revenues you try to feed me till sun down.

GazellesGazelle

In effect though, when I looked at some of the quaint examples from the approximate 214 VC backed firms with down-exits that CB Insights put together, “Gazelle” makes total sense to me. As I watched a very bubbly “young person” looking idiot, tell me on the TV, as to how I could get $200, $300 or $400 for my old iPhone by simply mailing it back to them, my brain struggled to inculcate commonsense into that business model of repurchasing old phones at such high prices when practically no one wants them.

Well, there is your example. You know you are in a bubble when a company like Gazelle raises $61.9M based on a business plan less useful than what a bull standing in the field could give you.

You can confirm that you are in a bubble, when some genius pays $18M for Gazelle. Apparently it is a company called “Outerwall”, another one never heard from or cared for.  Similar examples including LifeScribe, are available in the link below.

Conclusion

It would appear that for timing the bursting of the bubble, one would have to look closer at these so called “down exits”. See, what it is, as the greedy stockholders of Good are finding out about the equally greedy investors of Good,  the investors are not letting the lessons from 2001 die easy. Instead of going from $500M to 0 in 60 seconds, they are now selling off worthless companies to more worthless companies (what kind of a future is it when you are sold to BlackBerry?). This is a new type of game, and it looks like the investors will first make away with the goods for as much as they can, before plunging us all in the dark. So, the next bubble wont pop and whoosh, but slowly die away.

By the way, two things:

  1. “Unicorn companies”, the broader farce, I am saving for another day, and,
  2. Apple just reduced its orders for iPhones, as I scribe this post on 5 January, 2016.

Exciting times for all of us ahead!

References:

  1. The CB Insights Story: https://www.cbinsights.com/blog/poor-exits-startup-trends/?utm_source=CB+Insights+Newsletter&utm_campaign=c7eac2bc9b-TravelTech_01_05_2016&utm_medium=email&utm_term=0_9dc0513989-c7eac2bc9b-86415837
  2. The Good Technology Story: http://www.nytimes.com/2015/12/27/technology/when-a-unicorn-start-up-stumbles-its-employees-get-hurt.html?_r=1
  3. Exit Sign: Courtesy of https://www.pexels.com/photo/red-exit-sign-5371/
  4. Gazelle Artwork: Courtesy of http://www.freevector.com/gazelle/
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