The Death of the Disruptor

February 15, 2020

My Dear Reader,

In perusing Forbes this morning, I came across an interesting article in which I was able to make a connection to another piece that I read from my favorite financial professional, Simon Black. In the Forbes article, titled “Merger Meltdown: Ill-Fated Harry’s Deal A Harbinger Of Investing Reset” Denise Power takes a look at the failure of Edgewell Personal Care Co’s acquisition of Harry’s Inc, and muse’s that online direct-to-consumer startups may not be as strong as once protected.

“[Andrea] Weiss pointed to Japan’s SoftBank Vision Fund, whose $100 billion portfolio includes fast-growing, digitally enabled WeWork, Uber and Brandless, the San Francisco-based DTC brand that announced its shutdown this week. “The reality is that many of them have yet to show the ability to generate a profit.” The ill-fated Harry’s merger may be another “early indicator light” signaling companies’ waning appetite for DTC upstarts purely to acquire digital savvy, she says.”

What is interesting about this, is that for the longest time, we’ve been told that these internet disruptors are going to fundamentally change the way business is done worldwide. Yet, left and right these businesses seem to be imploding or at the very least losing money even though they are in some cases public. In reading this article, it reminded me a point made by Simon Black in quarter 4 of 2019:

“Musk was fortunate to find a sympathetic jury in Los Angeles, because they ruled in his favor.
But the really interesting thing about this trial was what Musk disclosed about his personal finances. He told the jury under oath that, despite being worth more than $25 billion, he actually has very little money. That’s because Musk’s wealth is both illiquid AND unprofitable. He owns around 20% of Tesla, for example, which is worth about $13 billion. But he can’t really sell his shares… for a number of reasons. They’re controlled by a trust. He has regulatory limitations. Many of his shares are either restricted or are already pledged. This isn’t unique to Musk; Warren Buffett is the largest shareholder of his company Berkshire Hathaway, and he’s never sold a single share.”

It’s just more proof that much of the wealth in the United States is built on future prospects. Of course that’s the point of the stock market, but this just spells bad news for the average American in a number of ways, but also throws a wrench in the political future of America. The first way that the average American is going to feel the effects of this wild west financial situation is the fact that because of where the wealthiest money is, tax laws will not generate the wealth needed to fund the US debt and future spending programs. This means that a higher effective tax rate is going to be needed, and a larger bracket in order to compensate. This isn’t the fault of those in the top bracket, they’re entitled to what they’ve earned, but the coming crisis of the 2020s is certainly going to need major reforms in this regard. Secondly, it has to call into the question of the viability of Market Investments. Well I don’t have any hard data to support this, I would assume that funds are starting to be directed towards online direct-to-consumer businesses, as the potential for growth is tantalizing. Not to mention the low performance of safer stocks, but because of the over-reliance on the market in modern-day financial planning, this isn’t exactly a recipe for success.
Finally, we must be wary of the growing demand for additional Financial programs and U.S infrastructure. Because a majority of Americans have opted into tax-deferred plans, the ability of the federal government to afford their political mistakes at the expense of the average American is growing ever more likely.
The good news is all of this can be avoided if you have invested in your private reserve strategy, and precious metals. The two of these combined will dispel the downside of an economic Market, allowing you to move in at the right time to potentially make a huge profit, barring political unrest.

To your creation and potential,
Kevin Prendiville