In China, a Dot-Com Déjà-Vu

If it seems similar to the dot com boom then it probably is. However remember this: Everyone overestimates what will happen in 2 years and underestimates what will happen in 10 years.....Aivars Lode

We’ve seen it before: the crazy spending, the stratospheric valuations. Twenty years later, it looks like the dot-com boom all over again, but this time the players are much bigger—and Chinese.

A Beijing-based startup that lets consumers order coffee via smartphones raced into so-called unicorn territory—a $1 billion valuation—in seven months from launch. The value of another firm, billed as an “Uber for trucks,” has soared to 300 times 2017 revenue; Uber Technologies Inc. itself is worth only about 10 times revenue.

But where some investors see dynamic exuberance, others see a market increasingly threatened by a confluence of forces including onerous domestic regulations and global trade tensions. The biggest risk? Another dot-com reckoning, the Chinese version of a cycle that erased billions of dollars of value from America’s tech sector in the 2000s and chilled tech investment for years.

Alibaba and the Future of Business

This is what happens when you don't have legacy systems.... Aivars Lode


Alibaba hit the headlines with the world’s biggest IPO in September 2014. Today, the company has a market cap among the global top 10, has surpassed Walmart in global sales, and has expanded into all the major markets in the world. Founder Jack Ma has become a household name.

From its inception, in 1999, Alibaba experienced great growth on its e-commerce platform. However, it still didn’t look like a world-beater in 2007 when the management team, which I had joined full-time the year before, met for a strategy off-site at a drab seaside hotel in Ningbo, Zhejiang province. Over the course of the meeting, our disjointed observations and ideas about e-commerce trends began to coalesce into a larger view of the future, and by the end, we had agreed on a vision. We would “foster the development of an open, coordinated, prosperous e-commerce ecosystem.” That’s when Alibaba’s journey really began.

View from the Lake: Is the United States a “AAA” Credit?

The slowly deteriorating credit standing of the US seems to prove the old judgment that Americans will always do the right thing after exhausting all of the other possibilities. Is the USA a AAA hashtag#credit? Aivars Lode

A perspective by R. Christopher Whalen, September 3, 2018

Grand Lake Stream | The discussions this weekend at Leen’s Lodge in Maine were wide ranging and, as always, of great interest. Will Argentina’s economy implode? (A: Sadly yes).  Argentina is trading at a discount to Uruguay. Will the commercial real estate market in the UK likewise collapse as the train wreck called Brexit unfolds?  (A: In progress).  When will the yield curve invert? (A: Soon).

One of the most interesting points of debate was the impact of the 2001 decision by the US Treasury to focus debt issuance on the front of the yield curve in order to minimize the debt service cost to the United States.  Along the way, the question arose: Is the United States really a “AAA” credit?

Readers of The Institutional Risk Analyst know that we have recently been focused on how Fed policy has manipulated the pricing of the yield curve as well as private credit spreads.  But so too has the Treasury’s decision almost two decades ago to limit issuance of 30-year debt affected the cost of credit and, at the present time, is exacerbating the flattening of the yield curve.  On October 31, 2001, following the 9/11 attacks, Treasury Undersecretary for Domestic Finance Peter Fisher famously made the following statement:

“We do not need the 30-year bond to meet the government's current financing needs, nor those that we expect to face in coming years. Looking beyond the next few years, as I already observed, we believe that the likely outcome is that the federal government's fiscal position will improve after the temporary setback that we are now experiencing.”

But of course the Treasury’s fiscal situation did not improve. Since 9/11, continued profligacy in Washington has caused the federal debt to explode.  As the surge of tax receipts generated by the aging of the baby boom have ebbed, the indebtedness of the United States has soared and with it the portion of US debt that is issued in short-term maturities.  The 2017 tax legislation has only accelerated an already negative fiscal trend. 

The Pension Hole for U.S. Cities and States Is the Size of Germany’s Economy

Whilst most people miss these headlines there are a lot of them around the world. Will the need for these funds liquidity force the next financial crisis? Aivars Lode

Many retirement funds could face insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed

For the past century, a public pension was an ironclad promise. Whatever else happened, retired policemen and firefighters and teachers would be paid.

That is no longer the case.

Many cities and states can no longer afford the unsustainable retirement promises made to millions of public workers over many years. By one estimate they are short $4 trillion, an amount that is roughly equal to the output of the world’s fourth-largest economy.

Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed. It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts.