Stocktake: Warnings on WeWork’s eye-watering valuation

More US recession indicators flashing red

WeWork IPO won’t work for investors

There tends to be hype galore when unicorns go public, so shared office space manager WeWork might be disappointed by the unremittingly negative coverage surrounding its upcoming initial public offering (IPO).

WeWork has only itself to blame; any company that hails "the energy of we" in its prospectus and which says its mission is to "elevate the world's consciousness" is bound to attract sceptical commentary. Worse than that guff, complained Triton Research's Rett Wallace last week, is the paucity of detail in its IPO filing, which he described as a "masterpiece of obfuscation".

Then there is the problem of valuation for a company that lost more than $900 million (€800 million) in the first half of 2019 and $1.9 billion in 2018. Eye-watering losses haven't deterred investors in a various tech startups in recent years, although a $47 billion valuation for a company that expects 2019 revenues of $3 billion seems especially optimistic. Many complain that WeWork is a property company valued like a tech company, although New York University professor Scott Galloway points out that WeWork looks expensive even by tech standards. Amazon trades on about four times revenue, notes Galloway, who says any analyst who claims WeWork is worth more than $10 billion is "lying, stupid or both".

Investors, you have been warned.


More US recession indicators flashing red

US recession talk continues to focus on inverted bond yields. Although historically a reliable recession signal, bulls point to other measures suggesting the US economy is reasonably healthy and say too much faith should not be placed in one indicator.

There's one problem with that argument, says London-based investment analyst Joachim Klement – many other recession indicators are also flashing red.

Klement looked at nine different indicators often cited as recession predictors, such as the yield curve, data pertaining to nonfarm payrolls, manufacturing and housing, and recession probability as calculated by the New York Fed and the Cleveland Fed, amongst others. Right now, five of the nine are warning of recession. That’s high – over the last 40 years, there was never a time when all nine signalled recession at the same time, with six out of nine marking the highest score.

“With one exception, whenever the signal count was at five or higher in the last 40 years, the US was either already in recession or dropped into recession in the next 12 months,” says Klement.

You can argue with each of the indicators, he says, but you can be “reasonably sure” something is wrong if many trigger a recession warning at the right time. The data, he says, suggest the likelihood of a US recession in the next 12 months is now “very high”.

All-or-nothing days are back

You know markets are nervy when stocks are rising and falling in unison, which is very much the case right now. Almost every S&P 500 stock tanked last Friday. On Wednesday, 433 S&P 500 stocks gained on the day, notes Baird strategist Willie Delwiche. On Tuesday, 428 fell in value; on the Monday, 433 advanced; the previous Friday, 477 posted gains. August has been an "all-or-none" month, says Delwiche, with an average of 416 stocks moving in the same direction on a daily basis – the highest level since January 2016's unnerving market downturn.

Bespoke Investment makes the same point, noting that half of 2019’s all-or-nothing days (when there are at at least 400 more S&P 500 stocks advancing than declining, and vice-versa) have occurred in August. All-or-nothing days occur in times of stress, when a herd mentality takes over and almost every stock moves in one direction. The all-or-nothing nature of the recent market action shows just how jittery markets are at the moment.

Waiting for Godot makes UBS reading list

Samuel Beckett probably didn't have investment bankers in mind when he wrote Waiting for Godot, but that hasn't stopped Swiss giant UBS from recommending the absurdist play to its employees.

The bank, reports Business Insider, recently sent its employees a summer reading list, the theme of which was openness to change. Godot was one of the more peculiar choices, justified on the basis it is a “great story of two passive observers who are waiting for something to come to them rather than taking action”. Even odder was the inclusion of the children’s book Charlotte’s Web. “One of the themes of the book is change: the turning of the seasons, the process of transitioning from childhood to adulthood,” said UBS, which said even children’s fiction “can teach us valuable lessons around change”. The various books, said UBS, “explore how to best deal with change, satiate your intellectual curiosity and prepare yourselves for the future – whatever it may be”.

UBS employees might be a bit concerned about their own future, as the bank is reportedly considering laying off hundreds of workers. Doubtless, anyone unfortunate enough to be let go will be grateful that consolation awaits in the pages of Godot and Charlotte’s Web.