A useful heuristic I have found is that well-worn narratives, especially media narratives or narratives promoted by powerful or influential people, tend to be wrong, or at the very least incomplete. You should always be skeptical of narratives even if promoted by academics, the media, and experts. Always do your own research to independently verify the veracity of said narratives. Often the assumption is, “these people are the experts…they have advanced degrees, a lot social media followers, and are guests on popular podcasts…if they say something is so-and-so, then it must be true, so I will take their word for it.” But there often there are subtle caveats that refute or call into doubt such narratives that only astute readers will notice, that can only be elucidated through independent verification and analysis.
For example, a common narrative is that the Covid-19 restrictions in the US are especially bad and onerous, and although I oppose such measures, like many things, such restrictions are even worse overseas, as bad as they may seem here. We see this over and over again, in which things tend to be worse overseas, even in developed countries such as Germany, Canada, or the UK. Things are more expensive, living standards are lower, wages lower, heating and gas more expensive, electronics more expensive. Sure there may be ‘universal healthcare’ but elective procures, dental care, and prescription drugs are not universally covered or there is only partial coverage, and everyone must pay into the universal system regardless of how much healthcare they consume. This means that someone who opts for private coverage is still paying into the NHS. In addition, longer wait times, and worse outcomes for cancer and other serious diseases compared to Americans. The point is, there is always catch. The media ignores these hidden ‘gotchas’.
So back to Covid, many of these European ‘social democracies’ have imposed full lockdowns in recent weeks and months as Covid cases keep rising and no has any idea what to do. Americans may complain about stores being closed, not being able to go to school, having to wear a mask outside, or stuff being closed early, but many of these European countries have total lockdowns that can last for many days at a time, meaning everything is closed and you cannot go outside at all; effectively, house arrest. At least Americans have the freedom to chose to move to states that are less restrictive, such as Florida, and also have possible legal redress on grounds of such restrictions and laws possibly being unconstitutional, but such options do not exist for citizens of Spain, Germany, the UK, Turkey, etc, in which governments can just unilaterally and summarily shut everything down for everyone, full stop, and everyone must comply.
As a second example, the narrative back in Feb-May was that this would be over by early 2021 or so…ha-ha fat chance…how wrong they were. The massive second waves dashed those hopes in a hurry, as many countries resume more lockdowns. The problem is, Covid spreads very easily, and as soon as these restrictions are lifted, cases balloon again (although these are exceptions such as China and Japan and South Korea, which were able to contain the virus for reasons that no one is ever able to fully explain). As long as policy makers keep focusing on daily case counts, there will be more lockdowns and restrictions for years to come, and even a vaccine will not do much to put a dent in this given how long it may be before it administered and the low expected compliance rate.
A third wrong narrative, back in 2018-2019, is that Tesla was running out of money and facing imminent insolvency. Elon Musk faced harsh criticism for the ‘pedo guy’ comments (even though it was not his fault, as I debunk the media here) and after an appearance on Joe Rogan in which he took a hit of weed, which called into doubt his competency to manage Tesla, especially when Tesla seemed to be in such dire straits financially. Tesla was losing money, but the media confused reported losses for negative cash flow: similar to Amazon, as I correctly wrote, Tesla was cash-flow positive in terms of selling cars at a profit, but was investing those profits into large one-time capital expenditures that produced losses on the balance sheet, which the media honed-in on, while ignoring the strong sales growth and cashflow positivity. Since the aforementioned blog post, Tesla stock has since surged 10x. Additionally, Tesla is now hugely profitable and will be included in the S&P 500 soon. From TheVerge.com, “Tesla made a profit of $331 million in the third quarter of 2020, its fifth straight profitable quarter and a sign that the electric automaker is hitting its stride. This quarter’s profit is more than doubles that of the third quarter last year.” So this is a complete 180 turnaround in terms of sentiment from 2018-2019.
There was a similar narrative back in 2014-2019 regarding Uber running out of money and being the subject of lawsuits, being banned from certain large metro markets, and claims of sexual harassment/discrimination. Uber Co-founder Travis Kalanick was forced to step down from his position as CEO in 2017 due to mounting scandals, and resigned from the board in 2019. Uber went public in 2019 at $50/share and the stock fell to as low as $20 in mid-2020 due to the pandemic hurting its ride business, but then Uber made a miraculous pivot to food delivery, turning the pandemic into a massive boon, and the stock has since surged to $45.
Uber’s food delivery business has more than doubled, as the pandemic increases appetite for online grocery orders and restaurant takeaway. The firm said revenue from its Uber Eats service hit $1.4bn (£1bn) in the three months to 30 September, jumping 124% from the same period in 2019.
The point is, Uber, similar to Tesla, defied the media predictions of its collapse and was not done-in by lawsuits and scandals, as so many hoped and wrongly predicted would happen. 6 years later, Uber is still in a strong financial position and can raise cash if needed by selling stock. Similar to Amazon and Tesla, Uber Eats is profitable and rapidly growing, but such profits are invested into expanding the business into new markets, producing large, one-time capital expenditures that show up as losses.
From the post Media narratives are almost always wrong:
Finally Uber. Although this may be premature given that the IPO was only a month ago, it seems as though the media was wrong again, and Uber is now trading above its IPO price. The media narrative for the past 5 years has been that Uber is losing tons of money and is doomed due to regulation, competitors, and scandals, yet Uber as of June 2018 is still worth over $75 billion. Yes, Uber is losing lots of money, but they said the same about Tesla for the past decade, yet Tesla is still around and its stock is 1,000% higher than it was in 2010 after it went public. And same for Amazon and Netflix, which were/are losing money yet have been great investments. Similar to Tesla, Uber has plenty of ways to raise money such as through secondary offerings and issuing debt, and Uber’s expenses are temporary as it builds its network. The media keeps insisting that because Uber is losing money (it reported an operating loss of $3 billion in 2018 after losing more than $4 billion the previous year) it should be close to worthless, yet given that it’s worth so much, obviously, market participants are not too concerned and there is more than meets the eye here. The media thinks they know more than the market. Yes, in the early 2000s many money-losing internet businesses failed, but the media does not make the subtle distinction between a business being cash-flow positive and losing money on one-time expenses, versus a business having stagnant growth and losing money due to the actual business model being unprofitable. My take is, the uber-fication of the world is happening. Uber cars and self-driving Teslas will be ubiquitous in a decade.
Even though Uber still faces lawsuits , the stock is unfazed. Even if Uber faces regulation in California, it still has many markets elsewhere, such as New York and Washington DC.
Another example of a wrong narrative was the over-hyped purported death of the online news media. I remember in 2017-2019 constant stories about ad budgets being slashed and news sites such as Vox having mass layoffs. ‘Learn to code’ had become a meme, as a sort of condescending remark to journalists who faced layoffs. But the events of the past year, such as Covid, the recession, the BLM protests, and the never-ending election saga, have created a news resurgence. The New Yok Times, Washington Post, and Wall St. Journal are reporting record ad revenue, subscriptions, and pageviews, as people compulsively refresh the headlines foe the latest developments of these and other high-stakes stories. When there is crisis or some other big story, people turn to ‘big media’ for updates, not podcasts, blogs, or niche e-zines.
In 2018 there was the narrative/consensus by economists and the media that the Trump tariffs against China would cause high inflation, recession, a trade war, and a bunch of other bad stuff. I correctly predicted none of those things would happen, and after a brief correction in early 2018, the stock market would go on to make new highs by 2019. In spite of tariffs and Covid, Chinese exports are surging anyway.
Another media narrative during Covid is that the $1,200 stimulus checks under the CARES Act were urgently needed save the economy or else there would be economic crisis, unrest, and food lines as far as the eye could see. As it turned out, according to the National Bureau of Economic Research, “People who spent the majority of their stimulus checks account for some 15% of U.S. households, compared to a third of Americans who saved their stimulus checks and more than half used it to pay down debt.” So only 15% of recipients spent on the money as intended, and the rest was saved, invested, or used to pay-down debts. Sure, for some people this stimulus came as major relief and was quickly spent on essentials such as food, but it is a far-cry from the media and political spin that the economy and societal stability hinged on this stimulus and that millions of Americans were $1,200 away from starving.
Moreover, the checks have long stopped yet the economy has not collapsed. The S&P 500 made new highs. Although the stock market is not the economy, as some always are compelled to point out, it is a leading/forward indicator. If the economy truly hinged on this stimulus, as some insist it does, the market would not be as high as it it, as the market would be pricing in a recession. But corporate earnings are still very strong, indicating robust consumer spending in spite of high unemployment and no more stimulus checks. The reason is, as discussed earlier, it that it is mostly the poor/lower-class and low income people who were affected by the virus and the lay-offs the most, whereas the upper-middle class class and wealthy, who consume the most, were mostly unaffected. This is also why Tesla has done so well. Although unemployment is higher than usual, the economy is far from collapse or recession. Third quarter GDP was up 33%, and forecasts for Q4 and 2021 remain strong in spite of the checks having stopped. So in summary, this narrative that the economy hinges on stimulus checks, is media and political spin, not actual economic reality.