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Landmark Links September 5th – Bubblicious

 

Lead Story… It’s been said that calling a financial bubble in real time is next to impossible.  Sure, certain people talk about bubbles nonstop but how many times do their pronouncements ever actually come true?  More often than not bubble-calling makes a prognosticator look like the proverbial broken clock that manages to get the time right consistently twice a day.  However, every now and then a financial bubble appears that isn’t so difficult to miss.  In fact, there is a bubble in today’s market currently being inflated at a rather impressive rate: ICOs or Initial Coin Offerings.  So, what is an Initial Coin Offering?  Simon Black at Zerohedge explains (emphasis mine):

If you haven’t heard of ICOs, it stands for Initial Coin Offering. It’s a combination of venture capital and cryptofinance.

Traditionally, startup companies have raised the money they’ve needed from angel investors and VC funds.

These days, companies are raising money by selling digital ‘tokens’ to investors, most of whom typically pay in Bitcoin, Ether, or some other cryptocurrency.

Tokens often represent shares in the startup company, just in the same way that Apple stock represents shares in Apple.

And, just like shares of Apple, investors can buy and sell their tokens in the market.

There are countless startup companies now issuing tokens. And, just like the price of the cryptocurrencies themselves, many ICOs have soared in price.

If this sounds like little more than a way to skirt the Initial Public Offering or IPO process and all of the regulatory red tape and reporting that go along with it, that’s because it is.  Despite the SEC recently warning companies that issue ICO’s that they fall under their regulatory umbrella, this is still very much the wild west of capital raising.  Some of the returns that these “investments” are generating are beyond absurd.  More from Simon Black (emphasis mine):

There’s a token issued by Stratis, for example, that is up 101,168% since its ICO last summer. The NXT token is up 672,989%.

Those are not type-o’s.

There’s another token that’s actually called “Fuck” which is up 370% in the last 24 hours.

The returns are absurd… especially considering the assets are priced in Ether or Bitcoin, which have also soared to all-time highs.

So on top of a 1,000% return in Bitcoin, ICO investors have also made a 100,000% return in the token.

Not sure about you, but I really wish that I had bought into the “Fuck” token offering a few days ago despite not having a clue what type of company it is backed by let alone it’s business prospects.  This begs the question: do you really believe that the businesses behind these tokens are growing at a rate that justifies that type of obscene appreciation?  Plus, this type of return breeds the “easy money” mentality that arouses animal spirits, pulls unsophisticated investors off the sidelines and leads to debacles like the housing bubble or the late 1990s tech bubble.  Need another red flag?  Paris Hilton and Floyd Mayweather have been promoting some of these things.  Seems really legit.  Black drew one more analogy in his post to show just how crazy things have gotten:

To put these numbers in context, Peter Thiel invested $500,000 in Facebook back in 2004 as the company’s first big investor. In 2012 he sold most of it for $1 billion.

That’s a return of 200,000% in eight years… pretty tame by ICO standards.

There is a legitimate argument over whether or not individual crypto currencies like Bitcoin and Ethereum are overvalued or not.  However, I don’t think that there is much of a debate that some of these ICO’s are incredibly overvalued and will end in tears for investors.  That’s not saying that there won’t be any success stories or that the group won’t continue to shoot towards the moon for a while as growing coverage in mainstream publications pull in more marks looking to get rich quick.  At the same time, there are storm clouds on the horizon.  For example China, where a ton of ICO capital comes from (this makes sense if you’ve followed large Chinese capital flows frequently overpaying for assets in a desperate scramble to get cash offshore at any cost), declared the practice illegal.

Mark Twain is reputed to have said that ““History doesn’t repeat itself but it often rhymes.”  In this case, the ICO boom sure appears to rhyme with tulips, tech stocks and mid-aughts housing.  Then again, maybe I’m just bitter that it isn’t nearly so easy to raise capital for real estate projects.

Economy

What A Drag: Superstar companies can be a drag on growth when a lack of competition enables them to gouge consumers, underpay workers and invest too little.

Levered Up: America’s public companies are foregoing equity in favor of debt to buy back shares and make acquisitions.  I wonder how this will turn out.

Commercial

Whipsaw: Houston was dealing with a glut of apartment units before Hurricane Harvey hit.  Not any more.

Residential

RIP: Richard Florida thinks that the urban revival of the past decade or two is coming to an end.

Painful: The housing hangover is showing few signs of lifting as prices continue to increase and the supply / demand imbalance persists.

Higher Ground: Hurricane Harvey could reshape how and where Americans build homes as flood plane, insurance and building code issues come into focus.

Profiles

Consider Yourselves Warned: The IRS is looking at social media accounts to determine who they should be auditing.

This Was Inevitable: The maker of the Juicero, the incredibly expensive yet largely useless wifi juicer which managed to raise a whopping $120MM from gullible VCs is shutting down. (h/t Darren Fancher)

Juiced: Hedge funds are rushing into cryptocurrencies in an effort to boost their weak returns.

Buzz Kill: One of the consequences of widespread pot legalization is lower prices.

Charts of the Day

Reduced debt service burden due to low interest rates resulted in less non-discretionary spending as a percentage of households’ income

Source: The Daily Shot

WTF

Can You Spot the Irony: A man ran past security into the giant burning effigy at the Burning Man Festival in the Nevada desert.  He died and should now be the frontrunner  for a Darwin Award.  (h/t) Darren Fancher.  Side note: I’d sooner be stranded on a deserted island with the guy who did this than attend Burning Man.  Also, drugs are bad.

One Way or Another: A North Carolina man who jumped into the water to evade police ended up having to be rescued when he was subsequently chased by a shark.

Gotta Hear Both Sides: Homeless man claiming to be a vampire rips pigeon’s head off, drinks blood in New York’s Bryant Park.

Gotta Hear Both Sides Part II: A South Korean woman was arrested for cutting off her husband’s penis while he slept, then flushing it down the toilet because he allegedly played too much golf.

Going Postal: Seventeen postal workers in Atlanta have been charged with taking bribes to move cocaine.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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