Relying On The Kindness of Strangers? QT's fickle ways

As the famous play conveys, relying on the kindness of strangers is not a good strategy for living. However, during good times, such as Fed monetary easing coupled with Quantitative Easing, the kindness of strangers becomes almost compelling in its success. At times, borrowing or gambling yourself rich becomes a reality and "monkey see, monkey do" sets in.

As tightening becomes a reality, any strategy that relies on the kindness of strangers - such as the greater Fool approach or borrowed money - becomes dangerous. As a result, significant downturns have occurred in the housing and auto industry. At the same time, crypto and SPACs have taken significant hits. As the phase 1 of tightening turns to phase 2 of pausing, more problems in these kindnesses are likely to surface.

Who's gigging whom?

In Texas, the fans of Texas A&M are well-known for their sports yell of "Gig 'em Aggies!" The term is borrowed from the world of hunting frogs or fish as a form of spearing the prey with a "gig." But the term's usage is increasingly heard as we discuss the "gig economy," meaning a series of short-term jobs or engagements.

When I first learned about Uber and noticed the price and experience advantage over taxicabs, I went home and began the process of selling my cars. The economics made sense. Since I drove my car less than 5% of the time, ride share made sense. Further, there was labor as people between jobs or who needed additional income or flexibility could earn money. It all confirmed the beauty of capitalism's decentralized usage of excess capacity.

Recognizing that no clear competitive moats existed, I avoided any investments in Uber or its competitor Lyft. Then, as usual, the California government entered the space to save the poor labor market. Rather than address the bad business behaviors (such as not forwarding tips to the drivers - which was a major issue), California's legislators focused on creating full-time jobs. Another example of needed governance being misapplied. 

The result is chaotic. Without going into all of the details, the companies are now forced to some bizarre pricing models. When I looked at pricing to ride to DFW this morning, Uber was at $35 and Lyft was over $80. Two weeks again, it was the exact opposite. Of course, if the prices were similar, these companies would be accused of price fixing. Worse yet unsustainable losses at the parent level are occurring

Uber posted a $1.3 billion loss over the first nine months of the year, bringing the firm’s loss to $30.3 billion going back to 2015. Though Uber shares are down 40% since their spring 2019 IPO, the company remains valued at $54 billion. Lyft has similarly ugly results. The markets are pricing that a way to allow rational platform and labor competition will develop. Short of smart regulation or Lyft collapsing, I don't see it.