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Uber’s Path of Destruction – American Affairs Journal

According to today’s Wall Street Journal, share prices of Uber and Lyft stock have not recovered to the level of their offering prices.

One reason may be that some more perspicacious valuations of the companies are in the minds of some investors.

The commentary here on Uber’s business model provides insight into how to value the company’s financial prospects.

The reality of Uber may prove the wisdom of the old sayings “If wishes were horses, beggars would ride” and “If to do were as easy as to know what were good to do, chapels had been churches and poor men’s cottages princes’ palaces.”

There is something in the human heart which is prone to speculation; not the prospect of reward only, but hubris of besting fortune or just “irrational exuberance.” Financial markets, as John Maynard Keynes told us in the 1930’s, in large part, feed the need of betting on outcomes for the wise and the foolish alike.

PG&E Says Its Equipment Was Probable ‘Ignition Point’ of Camp Fire (Wall Street Journal)

Culture costs company big money. Pacific Gas and Electric (PG&E) says probably its equipment sparked the deadliest wildfire in California history.

The company is taking a $11.5 billion charge against earnings as a result. The company has warned it may not survive as a going concern. Credit agencies have stripped the company of its investment-grade rating.

But for five years the PG&E delayed a safety overhaul of the century-old high voltage line that is a prime suspect in the huge Camp fire which killed 85 people and destroyed the town of Paradise last November.

The delay reflected decisions consistent with company leadership priorities. In other words, delay flowed from core company values. Those values, part of the company’s social capital, were financially speaking a source of risk and so a detriment to, and so a reduction of, its comprehensive asset valuation. The company’s culture was a balance sheet liability (an equity loss) for its owners.

Such a loss to its present value should have been measured and recorded somewhere to provoke remedial management response.

The PG&E case reminds us of the BP accident at the Macondo well in the Gulf of Mexico, a failure of company culture which cost the company and its owners billions.

EBay Breakup Inches Closer to Realm of Possibility (Wall Street Journal)

Is a company worth more than the sum of its parts? A classic part of financialism is buying a company to break it up and sell the parts for a total sum more than what the company is valued at. This was the raider tactic in the 1970’s and 1980’s and a private equity play ever since.

Now it is being proposed for eBay by Elliot Management and Starboard Value LP.

How should the value of the company as a whole and its various parts be determined?

Blank-Check Companies, a Hot IPO Fad, Contain Pitfalls for Investors (Wall Street Journal)

Some people are seeking to raise cash from investors with which to buy companies and profit from their success – venture capitalism.

But what is the worth of a company that just has cash and no other assets? What can investors look to for assurance that the cash they provide will not be lost or wasted?

Again, giving a present valuation, a market price, to a future intangible is central to the creative dynamic of capitalism and to its repeated failures. An overly-optimistic price or valuation (sub-prime mortgages? CDOs, dot-coms? tulip bulbs?) draws forth wealth and wastes it, leaving investors the poorer.

These special purpose companies have little more than the intangible asset of the smarts of their managers.

Key Investors Are Unhappy With SoftBank Tech-Investment Fund — The Wall Street Journal

How much is a company worth? How much is anything worth?

Prices are the basis for all transactions; they make businesses succeed or fail; they favor some and exclude others; they are the basis for contractual agreements which provide capitalism with its fundamental morality and capacity to respect human dignity.

But prices can be nominal. Prices can be illusions as to real worth. Prices can be set out of stupidity or greed or fantasy.

There can be disagreement about prices – a nominal price has no truth to it, only the chance that someone else will accept it as reasonable or the basis for a deal.

For example, see story above.

Investors in the fund from Saudi Arabia and Abu Dhabi think that the Vision fund incorrectly valued companies in which it invested capital – over estimating their “real” worth.

Who’s to know?

 

‘Moral Capitalism,’ the Kennedys and Minnesota – StarTribune.com

My job for the Caux Round Table is to promote ethical principles for business and finance. And when one of “those” Kennedys wants to work on your idea for the good of the country, it’s a special gift.

Now, what’s important here is not me or my book, but the Minnesota roots of the idea of Moral Capitalism the book explains.

Read more of Steve’s editorial at the link above.

Jobs and Steel Tariffs – WSJ

Well, what do you know? Trump’s trade war tariffs on steel imported into the United States have seemingly proved that Adam Smith was right to oppose trade wars and mercantilism.

As tariffs on imported steel raise prices, American steel companies are adding new capacity to profit from price rises and less competition.

But who is paying American Steel companies for their product at higher prices? Americans! Who are thus being “taxed” for their consumption by government policy.

The Wall Street Journal editorializes that Ford lost $750 million in potential 2018 profits from the tariff; Caterpillar expects to lose $200 million in profits in 2019; Whirlpool estimates $300 million. Crown Holdings passed its higher cost on to its customers.