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Old 01-06-2019, 09:12 PM
Danny B Danny B is offline
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,281
Profitless prosperity,,, competing for investor money in the bond markett

Everybody saw that the runup to the dotcom was full of venture capitalists throwing $millions at anything that sounded like a good idea. Well, the FED has done it again. They pumped in megatons of liquidity. There weren't enough good investments to absorb all that liquidity so,,,, it flowed into bad invetsments.
The losses piled up very quickly and, everybody tired to get out. In the final analysis, there just wasn't enough profit to keep it all going. It is happening again. Profits don't matter,,,, just grow your share of the markets and, riches will follow,,for all participants.

"However, Tesla (TSLA – USA) is the clear thought leader in the Profitless Prosperity Sector where revenue growth is all that matters and profitability can be ignored indefinitely. When investors lose over $60 billion in Tesla equity value and learn that their bonds are severely impaired, they will stop investing in other money losing start-ups. The collapse of Tesla will be the catalyst for the rest of the Profitless Prosperity Sector to unwind.

Q3/2018 was the high water mark for Tesla’s supposed “profitability.” Q4/2018 will be the high water mark for deliveries. Both metrics will begin to comp negative in Q1/2019."
Amazon was the rare outlier to lose money for years while rapidly growing revenues before eventually inflecting towards profitability. Most copycat companies have no chance of ever becoming profitable—their businesses simply aren’t structured in a way that makes this possible. Even the winners trade at insane valuations. Yet, they have all somehow convinced investors to keep funding them because they are the “Amazons” of their respective sectors.

Without fresh cash, many of these businesses will collapse—quite rapidly. That is because they aren’t businesses—they are market share grabs in highly competitive industries with few barriers to entry. "
More importantly, after a decade of Profitless Prosperity, investors have a false sense of confidence. When the bubble unwinds, it will be fast and vicious as there is no natural buyer of a money losing business that’s run out of capital. It took half a decade to create the internet bubble yet it all vaporized in a few months. This bubble will also collapse at a similar rate."
If something cannot survive without fresh equity capital, if a valuation is justified by unlimited growth funded by future equity capital, if a company has yet to inflect into profitability, it’s time to re-assess your investment."
The Profitless Prosperity Sector Will Collapse... | AdventuresInCapitalism | Small Companies--Big Upside

I can't seem to copy from this article but, losing companies are at a level last seen in 2000.

Even the Chinese business model is focused on gaining market share and, ignoring profits.
China started out as an export economy but, planned to change over to an economy centered on domestic consumption. China previously had a very large current account surplus.
"for the first time in its modern history, China's current account balance for the first half of the year had turned into a deficit."
"Then back in November, UBS wrote that the upcoming loss of China's current account cushion, softening domestic activity, and upcoming tariffs mean that "for the first time in 25 years, China would have to make a choice between external stability and growth.
"and in early 2018, China got more of its growth from consumption than the U.S., the global king of consumer spending where some 70% of economic growth is due to consumer spending. And as China's increasingly wealthy population spends more at home and abroad, its total trade surplus with the rest of the world has shriveled to a fraction of its former size."
As a reference, China's trade surplus has shrunk by a third in just three years:

“Capital inflows, especially those into the bond market, will be very crucial for China’s balance of payments, as the current account will deteriorate further
if China’s bond market receives waves of overseas cash, that will help finance the deficits without running up a dangerous amount of debt in foreign currency. Then again, that's precisely the same boat that the US finds itself in as well.

Curiously, just like the US needs hundreds of billions in outside capital, so does China. Estimates on inflows in coming years vary from about $760 billion over the long term at Morgan Stanley to Goldman’s $1 trillion by the end of 2022 to $3 trillion through 2020 at UBS. "
So, China and America will be competing for investor cash. What about Japan and Europe? I think that those 2 are screwed.
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