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In Support of Ubers of the World

Freaking Heck's picture




 

By Chris at www.CapitalistExploits.at

Recently I read how Uber is blitzing London's black cabbies. God, it couldn't have come sooner!

I spent my 20s living in London and whenever I landed up taking a black cab in London it was usually after I'd had too many drinks and my cognitive powers had gone kaput. I blame the fog of alcohol for that as there is simply no other explanation for being ripped off.

The shock when looking at my wallet the following morning came not from what had been spent on food and drink, but on what had been spent on a ride in a rattly old wagon of a vehicle that hasn't had a design upgrade since Henry Ford decided horses were too slow.

In fact, I'd come to think that there were no homeless people on London's streets, the "homeless" were merely office workers who'd missed the last tube home and couldn't bear spending their weeks paycheck on a black cab.

Competition in the form of Uber is now providing a better, cheaper and more efficient service. It makes my heart leap for joy.

This is possibly the best thing to happen to the British way of life since the country was invaded by India and Pakistan, causing the widespread displacement of dingy eating houses smelling of grandmas' curtains, hocking sausages and mash, with an incredible array of ethnic restaurants all selling delicious tasting cuisine.

London Taxis

Now, there was some truth to the value that a London cabbie could bring to the exchange. In order to get a license cab, drivers need to learn the streets of London like the back of their hand. No small task, I assure you. And as a passenger I would find that valuable if it weren't for this piece of technology that made such knowledge largely obsolete - the GPS that sits on your smart phone.

Of course Londoners are not the only beneficiaries. The Americans have had it long before and it's been working magic on their shores.

Driving a car is something that a teenager can and does do. It doesn't require any particular level of skill. Recently NY medallions have been selling for over $1M. How on earth do we get to such an absurd situation where it costs over $1M in order to be "allowed" to drive a taxi in New York City?

Whenever we find absurdities where market forces are not left to solve problems, we find a market skewed by regulations where a tiny elite benefit while the majority suffer.

To understand why New York medallions sell for what seems to be an absurd price we need only look at the manipulation of the taxi market, namely a mandated limiting of supply of taxis. There are just over 13,000 medallions sold and they are strictly limited in supply.

This in itself is absurd. It's the antithesis of a free market but nevertheless, the real reason that they are selling for ever increasing sums is due to the bond market.

Yup! The income stream from a medallion is pretty steady and as such the medallion is essentially a bond.

As we detail in our extensive report on global debt markets, interest rates have been butchered by successive central bankers so the hunt for yield has accelerated. If, for example, you can earn just $100,000 annually from your medallion, you're looking at a 10% return. In today's environment that looks pretty attractive. Even if you're paying someone else to drive for you and that amounts to, say, $50,000 you're still netting a real return of 5%. Again, not too bad in today's yield starved world.

Taxi Medallions

There are changes afoot in the bond market. Little do most purchasers of New York medallions realise that their actions are a result of central bank meddling.

I suspect that medallion purchasers are going to get hit from two sides. One from the repricing of risk in the global debt markets and two from disruptive technologies laying waste to archaic industries and practices.

There will always be those who mourn the loss of London's black cabs and I say let them mourn. Not that long ago there was an outcry that we'd no longer have these things:

Red Box

Remember them?

Now, I ask you to choose...

HTC

Yeah, I thought so. Me too!

I realise that many readers are reading this as it's largely for financial and investment reasons.

I don't have any particular thoughts on the current round of financing on Uber which values the company at $50 billion, other than to say that I've not quite figured out in all honesty why Uber is so special. There are no particular barriers to entry in this market, and it looks awfully like Uber is being valued like a monopoly.

Clearly they've shone the brightest thus far but this is a very short timeframe we're talking about here. On the plus side, they actually have revenues, unlike Groupon who rose like a Phoenix only to collapse post IPO.

Certainly I think what Uber highlights more than anything is the very real fact that there are markets screaming out for disruption.

I'm in favour of Uber's everywhere. I have written about disruptive industries and Uber is a great example of disruption to the taxi world. And it's coming to the financial world too.

Some of the markets we've got our eye on in the venture capital space which are ripe for disruption are:

  • healthcare;
  • banking;
  • finance;
  • insurance;
  • legal work;
  • accounting;
  • education;
  • insurance;
  • data of all kinds.

As I contemplate the list of private companies sitting in our due diligence pipeline, I'm terribly excited by the world that awaits. There are some truly enormous problems that the global economy faces, which we've detailed repeatedly on the blog.

One of those is a very real threat of capital moving rapidly out of current "safe" investments. At the same time, there are companies who are moving to take advantage of the current dysfunctional and broken system we have. This is one of the themes we're actively investing in via Seraph. Sometimes it takes chaos to bring about change...

- Chris

 

"A free and open internet is a despot's worst enemy." - Jay Samit

 

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Thu, 05/28/2015 - 15:14 | 6140960 Ghordius
Ghordius's picture

Do you hear the sweet, sweet song of... Liberal Rationality?

It's globalization

Specifically, it's a demand. From Stock Exchange SuperBubbleCharged corporations that CAN'T WAIT to grow slowly and organically, because already overpriced, which in many ways it's the same as overlevered, which is a bit the same as...

...running from the creditors towards... markets. Any Market. ALL Markets

They have a Brave Bright Little Idea, and they have to Realize It All Over The World, and quickly

Globalization is forgetting... sovereign rights over markets

Globalization says: No, It's Not Your Market, Nobody Owns The Market, It's A Common Good (and possibly the next Tragedy Of The Commons)

You People, Don't Stop Us, We Are... Progress. If Our Idea Sounds Sensible In Financial Centers, It MUST Sound Sensible...Everywhere

Uber + Self-Driving Cars: RoboLimo

It's rational, it might be the future. What I am protesting against is the immense PUSH that a financial market like this causes worldwide.

I'd prefer to see a slow and organic local growth generating more competition, with local bright ideas for local issues

I'd prefer to see one of them applying their Bright Idea to one country, and then PROVE it can do a profit

But no, bankers aren't even interested anymore at the Mergers and Aquisitions they miss by OVERGROWING like mutant giant cells small companies into the UNICORN league...

...all of course thanks to ZIRP, NIRP and World Rounds Of QEs

Feverish, Mutant Teenage Megacorps Running Over Whatever Is In Front Of Them, Chased By Debt, Having To Run Or Die, And In The Process Not Realizing That They Might Run Over Their Future Customers, Too

Thu, 05/28/2015 - 13:47 | 6140613 Jack Burton
Jack Burton's picture

" disruptive technologies laying waste to archaic industries and practices."

I myself have been part on one of these revolutionary new business models. For 3 years now I earn much of my income from an Uber style business. The big corporations are pissing themselves seeking a way to shut it all down, but it is now global and too late for communism to reassert itself and shut down hundreds of thousands of small businesses. Ha! Ha! Fuck you stockholders of legacy businesses!

Thu, 05/28/2015 - 13:42 | 6140585 Jack Burton
Jack Burton's picture

"How on earth do we get to such an absurd situation where it costs over $1M in order to be "allowed" to drive a taxi in New York City?"

I can answer that. Financialization of the economy. ZIRP Fed Money. Money printing. Asset Bubble Blowing.  When trillions are printed from nothing, they all must find a home. In this case, some of the Fed's printed money found a home bidding up taxi medallions. All in hope a greater fool would pay even more to get that medallion. This is disconnected from economic reality, yes! But so is all of America's asset economy, it is all illusion created by printed trillions. When real value catches up with bubble value, the whole thing will blow up, and assets of all kinds will crash.

Thu, 05/28/2015 - 12:51 | 6140379 teslaberry
teslaberry's picture

licensing.

a bond is a license to make interest off money with no risk.

a medallion is a license to make pass through payments from a cab operator.

a law degree is a license to ask people for money for the privilege of representing them in court.

and so on, and so on....
it's all about the rules.

Thu, 05/28/2015 - 13:42 | 6140591 Jack Burton
Jack Burton's picture

Exactly!

Thu, 05/28/2015 - 12:12 | 6140234 NewColumbia
NewColumbia's picture

Don't forget about current housing options needing to be disrupted.  Current model is way overdue for an overhaul.  Expect more and more tiny houses, storage container homes and pre fab builds cramming small homes into tiny lots.  Not to mention the whole realtor, Inspector, Appraisal, title insurance scam.  It all needs to, and hopefully will be re thought.  

Thu, 05/28/2015 - 11:59 | 6140176 roddy6667
roddy6667's picture

The first time a well-known person like a politician or  a celebrity gets himself or his family killed or maimed in an uninsured, unlicensed Uber  vehicle, it will be over.

Thu, 05/28/2015 - 14:24 | 6140787 Comte d'herblay
Comte d'herblay's picture

Politicians and celebrities travel in private Limos.  No worries that Nancy Pelosi will travel commercial. 

Fri, 05/29/2015 - 00:44 | 6142692 roddy6667
roddy6667's picture

Could be a daughter leaving a show with a friend who calls an Uber vehicle. Crash. Dead. No insurance. No license to operate a taxi. Uber will be toast. There are good reasons why public transportation is regulated.

Thu, 05/28/2015 - 10:50 | 6139904 taketheredpill
taketheredpill's picture
Agree that the development of GPS has rendered detailed city road knowledge less valuable, and fares should be lowered.  But how does it work as far as business fees/liscences are concerned? I assume that taxi companies pay an annual fee to the city, some portion of which goes towards infrastructure (i.e. roads) that is used by these companies to earn their income. Does Uber pay anything similar or are they free riders?
Thu, 05/28/2015 - 10:45 | 6139889 praxis
praxis's picture

Oh yeah thanks UBER for bringing your bloated corporation into mom and pop cab companies territory all throughout rural america.  As a cab driver, I'm so greatful my average wage will be falling from $4.00 per hour on some nights even lower, as I compete with stupid college students driving their parents BMW's around town.  UBER you're over hyped.  Know why?  Cos the dummies who "sign up" dont know what they're getting into.  They think they're going to bring home bucks when in reality they're going to destroy their car and make less than minimum wage most nights.  In fact, most will simply quit when economic reality smacks them in the face...and that reality is, most cab drivers dont make squat...and even less once they start competing with us.  So yeah, by all means, sign up, ruin your car and get punched in the face by drunks, robbed by petty thieves and enjoy cleaning up all the puke (you'll find out;)  

Thu, 05/28/2015 - 14:34 | 6140822 RafterManFMJ
RafterManFMJ's picture

This taxi driver has a blog that's entertaining.

http://taxicabdepressions.com/

Thu, 05/28/2015 - 08:53 | 6139459 TheGreatRecovery
TheGreatRecovery's picture

I think the medallion business concept is also a monopoly concept, but it is an "artificial monopoly" that impedes progress, whereas Uber is a "natural monopoly" that results from and distributes progress.

Thu, 05/28/2015 - 08:42 | 6139436 TheGreatRecovery
TheGreatRecovery's picture

Makes sense.  All those people with cars they can't afford, and without jobs (due to the Great Recession), and now with cell phones which allow customers to reach them easily.  We hear constant talk about building more infrastructure, but an alternative to building more infrastructure is having fewer vehicles, and Uber seems like a way to have fewer vehicles.

Thu, 05/28/2015 - 08:44 | 6139442 TheGreatRecovery
TheGreatRecovery's picture

I believe the term "Great Recession" actually originated right here at Zero Hedge, but that origin occurred before "the new" Zero Hedge, and therefore, apparently, cannot be found by searching the archives.

Thu, 05/28/2015 - 14:32 | 6140808 RafterManFMJ
RafterManFMJ's picture

Education?

Oh, ab-so-lutely! In 20 years I'd say 75% these "institutions" will be gone - and I'll raise a glass in toast.

Only the stranglehold of Accreditation which is in fact racketeering, prevents it now; soon a wealthy individual or a coterie of same will band together and craft a virtual institution that will shatter the Ivory Towers, ignore the gatekeepers and produce a no-nonsense student that is capable of production upon graduation. Even without being accredited, they'll be hired by companies interested in results, not gender studies...

And it will be ... magnificent.

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