LAJ ARTICLES

The end of Uber. Movable object meets unstoppable force

Mythologies die hard. People don’t want to let them go. We need them. Mythologies have to be preserved by its adherents. If someone is willing to be shunned and ridiculed, they can crack the egg, but then the true believers will patch it up again, good as new.
I have written three posts about Uber’s unwind, the others are:
What came before Uber: Uber. Beginning the post mortem
What happened after Uber began and before it completely unwound. It details the Uber confidence game
This is the second post, the rightmost bookend. The end of Uber and what happens after
What came before Uber was Enron, Worldcom, Healthsouth, Tyco. I will also include Bernie Madoff, he is the hybrid of human and stock market myth.
Let’s skip who, what, when, where…
Why did the companies get exposed? You cannot start the unravel when some accounting discrepancy is discovered or when some odd email is sent or some flare lights up the night sky.
Frauds begin with hubris. The destruction sequence initiates when people want to sell.
The start of the Madoff unwind was when the investors wanted to cash out. They invested ‘X’, a few years later they expect ‘X+’. Ultimately Madoff had no new investors to pay out the investors who wanted to sell.
Publicly traded companies have a mechanism that can keep financial fraud undetected, they make acquisitions, muddying earnings and making their business and finances a tangled and undecipherable mess.
Back to the reveal. It begins when the big investors want to sell, cash out and take profits. Many times those investors were participants in the fraud. Some of Bernie Madoff’s clients knew that it was a Ponzi scheme, they just wanted to be on the winning side. They started lending Madoff money with  a huge interest rate so that he could pay off the investors who wanted to sell. (in some instances there were clawbacks, but that makes this too complicated)
Enron and Tyco were the same. But different. Many of Tyco investors knew the math didn’t add up, as did Enron’s. When the dollar figures of a scheme get large, more and more people become spokes in its bicycle wheel. First it’s internal staff, management, admin, sales, finance. Those employees do a ‘friendly’ extort, they want bigger bonuses, higher salary. They want more. At that point there becomes a paper trail.
But still Madoff, Enron, Tyco aren’t exposed. The biggest investors knew it was a scheme, but for them it was riskless. This is crucial to understand.Madoff was giving these complicit investors guaranteed incredible returns. Tyco was skyrocketing, as was Enron, as was Worldcom. If the stock, or ‘vehicle (Madoff) goes under water they can sue. They can plead innocence, fight the receivership to recover their investment. They sue the analysts, the bank, anybody and everybody.
There is another set of investors who suspected something but thought the myth would keep the fraud afloat.
And another set of investors who just outright believed the myth of above average stock market returns were sustainable for an almost impossibly long time. Earnings never disappointed, always guided up. The CEO becomes a celebrity. Big warning signs that were unheeded.
Another set of investors just bought on momentum. They saw the stock was trading higher so they bought. This is (by me) called the ‘greater sucker’ theory of investing, someone stupider will come along and bid the stock higher.
And another set of investors are the mutual funds and pension funds that just choose not to do any due diligence, this is much more common than not. The fund analysts will join the earnings conference call, they will ask the requisite questions, but, they don’t know or give a shit whats happening.
And another set of investors is again the pension funds and mutual funds who buy because the stock is going higher and the funds want to show their investors that ‘they own it’, this is called window dressing. “look, its in our window’ the prospectus.
Lastly, another set of investors who are just there, mostly retail investors who got the stock because an analyst recommended it.
In the next posts I’ll reverse engineer Uber technology, strategy of cartelizing the taxi business, scale, self driving cars and also all the legislation and headlines its going to increasingly encounter. A teaser of one those next posts is this: If you think Uber brought on Eric Holder, the former United States Attorney General to help squash a sexual harassment lawsuit and show a ‘caring and responsive peacock display…you’re clinging to myth.
Uber is valued someplace north of 60 (fuckin) billion dollars. A billion is a lot of money. 60 billion is a lot more.
What if: Uber shareholders want to sell their stock and nobody wants to buy.
The end?

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