The Grand Fraud of 2019
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2019-04-15 08:55 by Karl Denninger
in Market Musings , 200 references Ignore this thread
The Grand Fraud of 2019
[Comments enabled]

It's baaaaack.

If I stand up a small business and wish to sell shares to unaffiliated people they have to be what is known as "accredited investors."  In other words I can't just sell stock privately to anyone and the reason this was put in place is to protect the common public from snake-oil salesmen and frauds.

We can argue whether the way this was done is good or bad, but if you can manage to file an S-1 you can make fanciful, even ridiculous claims and sell stock to anyone who wants to buy -- even if it's with their last $50.

In 1998 and 1999 there were a spate of IPOs that, between them, made utterly farcical claims about "total addressable markets"; effectively claiming more in GDP than existed.  Obviously that was not going to happen and didn't; most of those firms literally do not exist today and those who bought the stocks lost, on an effective basis, all of their money.

Uber is now proposing the same sort of insanity.

I won't quote you the whole S-1 or the pieces of it that, between them, are somewhere beyond comic-book dreams.  It's astonishing that a company would come to market with a mid-double-digit operational deficit percentage over the space of years, have no operational plan they can put before you that will make that an operational surplus (this is called a "profit", by the way), that the "raising of capital" will in part allow some who threw their fire into that cash furnace to get it back out and replace it with yours and that it will be quite-literally legal for the village idiot to put as much of their money into the furnace as they wish.

Every penny of it is likely to vanish.

They say that markets go through periods of "extreme euphoria" and that we're nowhere near that point yet -- therefore, according to CNBS and the rest, it's "safe" to put your money in.

Uh huh.

When companies come to market who have never made a profit, have no concrete plan to make a profit, are providing a service people want but can't sell it at the price that would make it profitable (otherwise they would be; why would you leave a huge amount of money on the table if you could keep it?) then we're not on the edge of "being there", we're not "in the middle" of euphoria -- we're positively stoned on it to the point of torpor.

Enjoy the crash.

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