This week Trevor Noah (new host of The Daily Show) interviewed AirBnB’s founder. AirBnB is an integral part of the “Sharing” economy in which no one owns anything but rents when they need something. He said the big value today was not in ownership, but in sharing one’s experiences of non-ownership. Hence the growth of Facebook.
My father was an investment banker/venture capitalist in Australia. He funded startups of companies making things that didn’t exist in Australia but existed in Europe or America. Like lolly factories and pizza shops. Like nylon and tire retailing.
Robert Gordon has just written:
He argues it’s hard to find a replacement these days for any one of the five Great Inventions that powered economic growth from 1870 to 1970: electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine and modern communication.
Worse (in my brain), much is over-built — from retailing to office building. Everyone is buying online. And everyone is doing their work at Starbucks, not going to the office. Starbucks is the new shared office.
We have oodles of capital. And capital is cheap — basically free — because borrowing money is free and everybody wants to invest in startups because there’s nothing else — the stockmarket being so dismal and all that.
You can quickly get depressed with the lack of real investment opportunities — as many of my friends are. I’m not pessimistic. I recognize it’s a new world. Change is faster than ever — which makes choosing between a Gap, a Target, a Macys and a TJX very very difficult. One disappoints. The other explodes. How to figure?
Hence my personal investing is shifting to what I call The New Cloud — companies like Verizon (VZ), AT&T (T), Facebook (FB) and Con Edison (ED). And, of course, rental housing for the middle class — teachers, firemen, nurses, policeman. Boring and safe.
Too hard to gamble with startups. Too hard to figure out winners from overcrowded fields, like retailing.
There’s a piece on the Internet that’s getting a lot of play. It’s called “Abundance“. It’s by a young 39-year old financial advisor called Joshua M. Brown. The piece is extreme, but worth reading:
Abundance
The only way to save the economy is to crash it.
There’s too much of everything and it’s not good for anyone. It’s hurting everyone. Paradoxically, abundance is now the enemy. This sets us apart from virtually every other society throughout history.
You can blame the Federal Reserve’s loose money policies if you’d like. There is over-investment in every industry. It’s killing confidence. Nothing is worth what it used to be. We haven’t adjusted to this reality yet.
Unlimited music, nine dollars a month.
Unlimited movies and TV shows, thirteen dollars a month.
Unlimited news and journalism, zero dollars a month.
Facebook is free. Twitter is free. Snapchat is free. Instagram is free. Youtube is free. Video game apps are free. Texting is free. Sexting is free. Skyping is free. Chatting is free. Why would you spend money on anything? Where do you think people spend their time now? Endless entertainment and content, for almost nothing.
Oil costs almost nothing too. We have so much there’s no where to even store it. Natural gas supplies are overflowing, they’re burning it off at the wellhead. Coal demand is going extinct. Copper prices, iron ore prices – it’s going bidless. No one wants it, they keep producing more regardless. Why? “I don’t know, it’s what we do.”
Portfolios are free. “Give us a billion dollars, we’ll lose money on the cost of managing it for you.” Online asset management firms are spending $600 to acquire a customer that will pay them $60. Their financial backers love it. “It’s user growth!”
What’s the business model? “We go public or get bought out by someone with the opposite problem – too much profit, not enough user growth.” The business model is an exit for the investors. “BlackRock will eat it. They’ll eat anything.” No one cares how many actual business models get wrecked in the process. How many useful jobs are lost in the process. The new fixed income or currency trader on Wall Street will never need health care, or take a vacation or grab a female co-worker’s ass. It’s a chip on a server. Much cheaper to employ, much easier to manage.
Automate everything, outsource the rest – it’s cheaper for the customers. “But now there are no customers left, no one has the money to be a customer anymore.”
Congrats on your efficiency.
+ Start up
+ Cash in
+ Sell out
+ Bro down
“Let’s take a product or service that people used to charge for, make a worse version and give it away for free!” Why would we do that? “Bro down.”
Clay Christensen’s book on disruption, `The Innovator’s Dilemma’, has been twisted into an entirely different book. It was once the Bible, now it’s the Necronomicon – the book of the dead.
Even money is free. The people and firms with the least need to borrow it can borrow it with abandon. Apple can have as much money as it wants, virtually free. They have no idea what to do with it. The US and German and Japanese governments can borrow for free. Then what? There is nowhere to put the money and no will to risk using it for the future. The electorate is old. They don’t care about the future. They don’t have one, just a present. We live in their basement. We live in their extended past.
Malinvestment is everywhere. The capital markets runneth over. “Give us something with an income stream to put our money into! Even the promise of an income stream will suffice.“
Here’s the perfect business idea for this environment: Open a Hundred Dollar Bill Store (trademarked). You sell hundred dollar bills for ninety dollars each. You’ll lose ten dollars per transaction but you’ll do a trillion in revenues in year one. Maybe you show an ad to everyone who walks into the store and you break even. User growth with be on the order of 1000% per month. A billion users. You’ll be the biggest IPO of all time when Goldman’s underwriters get wind of that growth rate. Go public and let someone else worry about a competitor selling hundred dollar bills for eighty-five.
When you can have anything at any time, is anything worth anything?
Here are the results: You can get a job but there’s nowhere you can afford to live that is anywhere near that job. You can create your own job but, absent access to capital markets, you can’t compete with those who have it. Plenty of hiring in New York and San Francisco. Good luck living there.
What a difference a year makes. Today is my 39th birthday. A year ago I was writing about scarcity. There is no such thing.
Today there is too much of everything and no demand for it. Abundance is wrecking the economy. Too much oil, too much gas. Too many websites and shows and streaming services and apps. Too many subcultures and verticals and genres. How can anyone be heard or seen? How can anything rise above the din?
We used to have a pop culture. The biggest song on the radio, the biggest movie in theaters, the number one show on television, the best-selling book. Now we have 50 different pop cultures. Microcultures within subcultures within cultures. There is no agreement on anything.
If you’re wondering why the fringe candidates are the mainstream candidates in this election cycle it’s because there is no mainstream. It’s because only the most extreme views can be heard across all of the cultures and platforms and verticals and genres. You have to sound like a f*cking insane person. Kanye knows this. Kim taught him. Trump knows this – instinctively. “I can be anything to any group I’m speaking to.” He was born for this moment in time.
Sanders figured this out accidentally. For god’s sake he is tied with a Clinton for the Democratic party’s nomination and running on a Castro plan for the economy. His message is extreme enough to get through the noise, like Trump’s. How else can you reach the stoners, burnouts, communists, veterans, social justice warriors, union members, #blacklivesmatter, truthers, birthers, health goths, TED talkers, money guys, values voters, evangelicals, patriots, gun nuts, tweeters, tweakers, Tea Partiers, retirees, millennials, boomers and crossfitters?
We’re electing maniacs. We’re more connected than ever and it’s making everyone feel more alone. Connectivity is giving us a constituency of the like-minded. When you can find think-alikes online, there’s no reason to even have a conversation with anyone who thinks differently. We’re retreating back into our subcultures. The only consensus is that there isn’t one.
What do we do with all this everything that we have? All the abundance that’s holding us back?
I don’t have any answers other than what I began with – we need a washout. A recession would be plenty, no need for anything worse. It’s got to be flushed from the system. Bad business models that were never designed to succeed outside of raising capital to continue must not be allowed to continue. No need for legislation, the cycle will clean it up. It always does. The best thing that could happen here is for a return of the cycle. We’re in year seven of an “expansion” and no one is happy. It’s time for a contraction. It’s long overdue.
Large pools of money need to be drained so that they can no longer be a source of malinvestment on an epic scale. Some people have to suffer for the benefit of the whole. Spock told Kirk this: “Logic clearly dictates that the needs of the many outweigh the needs of the few.”
The few will be just fine, even if they have to lose a few dollars.
The many will not be fine until the current cycle turns and we wring out some of the excess.
And then we begin again. Less abundance of resources will demand more ingenuity. The system will be back on track.
The present situation cannot stand.
+ Start up
+ Cash in
+ Sell out
+ Bro down
What the he*l are we selling? Time-wasters and profit-shrinkers in place of companies and industries. Schumpeter didn’t have the current version of creative destruction in mind when he coined his phrase. This is destructive destruction.
The abundance is killing us.
The value of the Holy Bible.
On last night’s subway ride, I noticed a nice man is consulting his Holy Bible.
I asked him to open it. This is his Holy Bible — his subway card, his credit cards and his iPhone.
I asked Why?
He said it was ‘theft-proof.” He could leave his “Holy Bible” anywhere and no one would steal it. No one!
He bought it for $8 on a Chinese web site — which he can’t remember. Google “Holy Bible cellphone case.” I’ll bet you’ll find one. Make a great birthday present.
Harry Newton who points out you can read Brown’s column called The Reformed Broker here. You can read Paul Krugman’s review of Gordon’s book here.
For your weekend reading, you should read:
The Koch Brothers’ Dirty War on Solar Power
All over the country, the Kochs and utilities have been blocking solar initiatives – but nowhere more so than in Florida
To read the incredible piece, click here.
This also looks like fun reading. It just landed on my desk:
Life is fun. Going to be a great weekend.
That Rolling Stone article is spun so full of half-truths and misstatements that I don’t know where to start. The FIRST clue is when the first quote is from former Florida Gov. Charlie Crist. Good grief! Could you find some drunk on a park bench with less credibility?
Sure there are monopolies and sure the utilities have great sway. Where does that condition NOT exist?
I live in Florida. I have open roof space. I run the numbers once a year. They DO NOT make economic sense. That is particularly true if you do a true life-cycle cost analysis and acknowledge the cost of maintenance and replacements. The ONLY way homeowner solar power makes any sense is if some level of government PAYS the property owner. [Not talking about large commercial/institutional installations. They benefit from economy of scale] Um, WHY should government do that??
This article was a piece of propaganda aimed at trying to convince the Florida Legislature to fund subsidies for homeowner solar. It is cheap crap and, Harry, shame on you for being deceived.
D Tomlinson, you are 100 percent wrong. “Internet” has always, and will always, be spelled with a capital “I.” Punctuation rules suddenly don’t change. I’m sure you can find “internet” with a Google search but that’s because many people are dumb like you. Your post is beyond ignorant. Or, as you probably spell it “Ignorant.” I am a fifth generation American. (To you, probably “american.”) Harry moved here at some point after being born. I wish he had not since he’s dispensed poor investment advice since.
Do any of us really believe the Rolling Stone and their made up stories anymore? I have friends in Florida, so this is second hand, but according to them, there are shenanigans on both sides of this story. The big push back from the government was due to the fact that the pro-solar environmentalists wanted the state to pony up money as an incentive for people to install solar. Therefore increasing the role of government while spending the people’s money on something that if it truly is less expensive, then it should pay for itself. Accordingly, the environmentalists behind this have their nest eggs in the solar companies basket. Then they try to bring in man made global warming to make everyone feel bad. Another hoax that has been shoved on us that will eventually allow the government to levy another tax on us for a scientific unproven phenomenon.
There is always more to the story that they don’t want to tell you.
One of the myths of income disparity is that if someone is rich that they took it from someone else. poor people are not poor because someone took it from them they are poor for a host of many reasons, but to blame someone who has made a good living for someone else who hasn’t is just ludicrous. However the exception to the rule is the government.
Nobody is “blaming” anyone, but the fact is that wealth is not created by individuals alone but rather as a function of society’s laws, institutions and practices. Show me a wealthy businessman and I’ll point out that the value of his/her business had many contributions: an educated workforce, rule of law, enforcement of laws, roads, markets for his/her products, etc. As a society we have to recognize that as worker productivity increases the benefits should be enjoyed by all of us and not just the financial elite.
I think the piece by Joshua is indicative of the increasing divide between haves and have nots. You can see he is relatively young, living in a bubble of relative affluence.
While it is true that for the financially stable abundance is a reality, for an increasing portion of the nation the reality is entirely different. People flock to free services because they cannot afford anything better. Just ask your average 23 year old graduating from college with a mountain of debt, his high school educated sibling working for $8 per hour of the laid off 52 year old guy who is lucky if his income is only reduced by half when he is lucky to find any new employment.
I don’t see how his “solution” would work any better now than things did in 2008. Sure, the poor will get poorer, but the rich will get richer and wealth will continue to concentrate. How does that make anything better?
Well, Harry, stocks are up about 5 percent since I issued my buy signal on your site 2 weeks ago today. How many of your readers invested then and made out great? I am going to guess none, because they’re overwhelmed by all of the bear propaganda you constantly post. Remember, I learned at the hands of Benjamin Graham (through his books) and have studied Warren Buffett and other great investors. I am extremely wealthy partly because of shrewd investments, not because I “wrote” some silly tech directory that no one ever heard of like Harry. The other reason I am wealthy is because people like you constantly write that the market is worse than it is and smart guys like me take advantage of the dummies. Remember, two weeks ago I never said the market was great. I’m still not saying it is. What I am saying is that the stock market priced in a recession and that all the indicators are that we are not going to have one anytime soon.
You know Bowser, there are plenty of places to be a dick on the internet, why do you have to do it here?
I’d have to say you’re the dick, Tom in CA; you used the word “Dick” after all. You know who’s really a dick? A guy who continually gives poor investment advice, is always trying to talk people out of investing in the businesses of this great country WHEN HE DOESN’T EVEN COME FROM HERE, HE’S AUSTRALIAN! That’s a dick, chowderhead. Oh, and Tom – “Internet” is always capitalized. If you were as smart as you think you are you’d know that.
Don’t you have something better to do? I think I hear your mother calling…..
Actually that was your mother. She called me last night and asked me to come over.
So, you are into necrophilia eh? Ha.
Browser, I have gained my loses back and then some, but it wasn’t because of you or anyone else’s recommendation. That would be just as stupid as blindly throwing a dart.
Good post today, Harry. Your stock choices VZ, T and ED as a group are reasonable dividend payers, too! Certainly yielding more than inflation. I like Josh Brown and he might be correct that a recession is overdue– the world’s central bankers seem to have de facto outlawed recessions– but Josh had me when he called currency traders “necessary.” Ha!
The US needs to figure how to allocate all this abundance. Wealth inequality does seem to be putting stress on the long term ability of our economy to work for everyone. The obvious answer is to tax wealth (not income necessarily), but nobody wants to actually do it; even Bernie keeps talking about funding everything with a payroll tax while guys like Mitt Romney have $100 million in their IRA’s, a program set up for wage earners. WTF? It seems a lot like the 1920’s, but what do I know?
Good use of the Bible, too. Thanks, Harry.