Finance

How the Maestro Birthed Uber and Lyft

By David Stockman  |  April 11, 2019

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions.

– Alan Greenspan, “Gold and Economic Freedom” (1966)

We talk about Lyft (Nasdaq: LYFT) as a symptom of Bubble Finance in the April issue of The Stockman LetterIt’s also a manifestation of Peak Trump.

Lyft lost nearly $1 billion in 2018. Still, upon its initial public offering (IPO), LYFT was priced at $72 per share. Its market capitalization was $24 billion.

That IPO came quick on the heels of Federal Reserve Chair Jay Powell’s total capitulation to Wall Street, Bubblevision, and the Tweeter-in-Chief.

And it highlights again that a posse of monetary central planners has been given unrestricted access to the most dangerous economic weapon known to mankind: a state-sanctioned monopoly on counterfeit credit.

LYFT was up as high as $88.60 on March 29, the day it started trading on the Nasdaq Stock Market. As of midday April 11, it’s at $61.44. It’s been as low as $59.75, on Wednesday, when it slid as much as 14% from Tuesday’s close.

As I note in the April issue of The Stockman Letter, Lyft is “yet another poster child for the current manic phase of the third great financial bubble of the 21st century. It’s more malinvestment.”

Now comes Uber, Lyft’s bigger, even more ridiculous rival. As the Wall Street Journal reports, Uber is looking for an initial public valuation of $100 billion. And that’s down from prior forecasts of $120 billion. It plans a per-share offering between $48 and $55.

That’ll give it another $10 billion or so to burn.

Uber lost $2.2 billion in 2017. It improved to a $1.8 billion loss in 2018.

It, too, is a product of “easy money.”

Central bankers have always been dangerous.

During the gold standard era, their latitude was sharply constrained by the ability of investors to dump the currency and demand gold. So, the prospect of immediate adverse repercussions in the banking system and interest rate markets enforced a steady discipline.

Even after Nixon closed the gold window at Camp David in August 1971, central bankers still believed their job was about Money – its supply, value, and integrity.

Fed chairs of that era – Burns, Miller, and Volcker – all tried different policy models and operating tactics. And they made numerous errors in the process. Nevertheless, their central focus was maintaining the purchasing power of the dollar.

That meant minimizing inflation without sending the economy into the recessionary drink.

They pursued sound Money. They were possessed by principled opposition to debt monetization. And the danger of a central bank-fueled runaway asset-inflation spree on Wall Street was minimal.

Even the incipient stock market boom of 1984 to 1987 was crushed in its cradle. Crowding out in the bond markets owing to the giant Reagan deficits caused Treasury yields to soar. They went from 7% to 10% during the first nine months of 1987. That spike precipitated the 22% stock market crash on October 19, Black Monday…

And then came the great pivot on the road to Bubble Finance.

[Click to Enlarge]

Fed Chair Alan Greenspan – on the job about two and a half months at that point – opened up the printing presses full throttle. He also sent his henchmen out to bully Wall Street dealers into stopping the liquidation of their underwater trading inventories. And they pushed Corporate America into a huge, semi-coordinated stock buyback spree.

Greenspan’s only purpose was to quell the panic and keep the Republican administration in the good graces of the electorate. But the power of the printing press and the adulation it generated paved the way to something far more insidious.

By May 1989, the S&P 500 Index had fully recovered from its 30% peak-to-trough plunge… And the “Maestro” was off on what became his 19-year mission.

That’s the pursuit of a “wealth effects” doctrine he’s pleased to rationalize as a post-Bretton Woods proxy for the gold standard.

It’s as preposterous as it sounds: Greenspan took the world’s leading central bank in the exact opposite direction of gold-standard discipline. He rationalized the Fed’s new interventionist policy and massive debt monetization.

Preservation of sound Money soon gave way to micromanagement of Economy.

The Fed become more and more invested in and entangled with gross domestic product and all its major components, helped by elastic Congressional mandates on inflation and full employment.

The slide into full-fledged monetary central planning was underway.

And it’s made the Maestro and his acolytes the toast of both Wall Street and Imperial Washington.

A Sound Doctrine

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

David Stockman's signature

David Stockman

Former White House Budget Director: 50% Crash Coming!

The horrible start to October has investors on high alert. This market bubble – inflated by the Fed’s low interest rates and Republican tax cuts – may have finally run its course.… Read More
David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR