Today’s daily is a bit abbreviated because of the Turkey post I just wrote. But there are a few interesting threads, especially in the UK.
1 Big Thing: the retail apocalypse is everywhere
The first thread from the UK I want to highlight here is the shutdown of Homebase locations. For those of you who don’t know Homebase, it’s a British home improvement store chain founded by British grocer Sainsbury’s that is found on many UK high streets. It’s very similar to a Home Depot or a Lowe’s in the US.
They are now shedding a lot of stores. And the way the Guardian reports it, you can see the retail apocalypse overtones in the storyline.
The DIY chain Homebase is expected to reveal the closure of up to 80 stores this week as job losses from Britain’s high streets total more than 30,000.
Homebase is battling for survival amid a slowdown in the housing market as well as rising costs and increasing pressure from online rivals and discounters such as B&M.
It wants to exit loss-making stores and agree to rent cuts ahead of a rent bill due in late September.
The closures will add to the mountain of job losses on Britain’s high streets. About 25,000 jobs have gone in the first seven months of 2018, according to analysis by the New Economics Foundation (NEF), with a further 8,300 jobs under threat at suppliers.
Why this matters: The hemorrhaging of retail jobs is not specific to the US. It is happening everywhere. The question from a commercial property perspective is “what do you do with that retail space?” Right now, the commercial property sector is booming. But this masks weaknesses in the retail sector that will create problems for commercial property investors in the next downturn.
2. Brexit and a shortage of labour
I have some scepticism about this next storyline. But I will present it as reported first. It’s also via the Guardian:
Companies are suffering from a “supply shock” as fewer EU citizens come to the UK, and companies struggle to fill vacancies, according to a survey of 2,000 employers.
The Chartered Institute of Personnel and Development (CIPD) said the number of applicants per vacancy had fallen since last summer across all levels of skilled jobs, and said shortages were forcing many companies to raise wages.
The number of people moving to the UK from other EU countries has fallen to its lowest level since 2013, according to the latest official figures, with the net figure for long-term migration from the bloc at 101,000 in 2017.
The number of people applying for the average low-skilled vacancy has fallen from 24 to 20 in the past year and from 19 to 10 for medium-skilled posts.
Half of organisations with recruitment problems said they had increased starting salaries in response.
Why this matters: this topic intersects two key debates. The first is on Brexit and its impact. The second is on wages and inflation. On Brexit, we can see the chilling effect on immigration. This drop is what is wanted by those in favor of Brexit. But the problem for UK employers is the loss of labour.
The last paragraph is the interesting one in that context: “Half of organisations with recruitment problems said they had increased starting salaries in response.” So the decline in immigration and a tightening of the labour market has forced employers to increase salaries. This is in a country that has experienced large periods of declining real wages due to inflation in the post-financial crisis period. From a wage earners perspective, how is this bad?
Also notice the numbers: “The number of people applying for the average low-skilled vacancy has fallen from 24 to 20 in the past year and from 19 to 10 for medium-skilled posts.” That seems like a lot of people still applying to job openings. Where is the shortage? Seriously. If any of you can explain how this means there’s a shortage of British labour, I’d like to know.
The way I see this article is as thinly-veiled pro-Remain propaganda. But the guts of the text speak against the pro-Remain agenda. There are lots of reasons for the UK to remain in the EU. But this article has not presented any from where I sit.
3. The crypto bubble
Bitcoin is trading close to the $6400 level right now. And that has caused a lot of pain for people who see cryptocurrencies as a store of value. The problem with Bitcoin is that, whilst it may have no intrinsic value like fiat currency, it’s utility as a medium of exchange is falling and its ability to use as a method of expunging tax liabilities is zero.
For example, Bitcoin transaction value fell from September’s $411 million to just $60 million in May across the largest 17 cryptocurrency processing services. Volume at other cryptocurrencies wasn’t much better. with value falling from $270 million to $69 million.
Going back to the ‘store of value’ problem, the market cap of all cryptocurrencies is now $214 billion, down from an all-time high of $813 billion right after the new year began. If you think in price to sales terms, that’s still 138 times the transaction volume. So cryptocurrencies are still overvalued as a ‘store of value’ when you look at that value relative to its use as a medium of exchange. That’s why people try to compare cryptos to gold.
Why this matters: Crypto is a mania. The money invested there will eventually go poof and ‘investors’ will be sitting on huge losses, with no one to blame but themselves. Fortunately, there isn’t a ton of debt tied up with this bubble. But the fact that it exists tells you that there are other manias elsewhere. The crypto mania tells you that the psychology of excess is rampant in financial markets.
4. Crackdown on scooter companies
Flush with cash, the scooter rental companies are flooding the market with rental product. And cities are reacting negatively. Here’s what the Wall Street Journal reports:
Shortly after two startups dropped hundreds of scooters on the streets of Denver without permission in May, frustrated city officials responded swiftly with vehicles of their own. A platoon of workers in vans and pickups scooped up more than 300 of the scooters and impounded them.
As shared-scooter companies Bird Rides Inc. and Lime, flush with investors’ cash, race into new cities around the U.S., they are finding city officials emboldened to enact regulations that limit the companies’ rapid growth. Urban authorities from Miami to Portland, Ore., are capping their numbers at a few hundred per company, or in some cases blocking the deployment altogether.
This could prove a big challenge for Bird and Lime, which have drawn nearly $900 million of investment between them with ambitions of launching thousands or tens of thousands of scooters on the streets of hundreds of U.S. cities. Sixteen-month-old Bird was recently valued by investors at $2 billion, and 20-month-old Lime at $1.1 billion—the two fastest U.S. startups to pass a $1 billion valuation, according to data tracker PitchBook. The closely held companies don’t disclose financial data.
Why this matters: These two companies are what are called Unicorns, VC funded startups that have reached implied funding round valuations over $1 billion. They have raised more money than they know what to do with. And in order to live up to their limitless potential, they are flooding the market with far in excess of the amount of product the market can handle or cities want on their streets.
This is the sign of a mania.
The Wall Street Journal writes: “Multiple other scooter startups have formed recently, and ride-sharing companies Uber Technologies Inc. and Lyft Inc. are planning a push into the space. ” Yet, these two companies still raised money at ridiculous valuations. I see this as the beginning of the end. When the signs of excess are so acute that you see this kind of round-up of product as a public hazard, it’s only a matter of time before there’s a pullback in funding.
For me, it’s always been the scepticism shown toward Tesla that I have seen as the denouement. When I wrote in June about why shares in companies like Tesla are going to zero, I used Tesla as the stalking horse for the scooter companies. Tesla is the more grandiose, believable face of the mania that has allowed companies like Lime and Bird to reach billion dollar valuations. With Tesla now under attack, the whole edifice of trust that these companies can scale to justify their valuations will come crashing down. We are near the endgame.