KeNo's Housing and Economic Portal: Tuesday December 1 Housing and Economic stories

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SEC Goes Unicorn Hunting: Regulator To Scrutinize How Funds Value Tech Startups - (www.zerohedge.com) Back in March, we brought you “Tech Startup Bubble Has America's Retirement Funds Chasing Unicorns.” In it, we revisited the “highly scientific” process by which tech startup founders and their VC backers determine “valuations.” As anyone who follows such things knows, the valuations are all but completely made up. But that’s perfectly ok, because as the VCs who fund these companies will patiently explain to you, the problem is not that Snapchat isn’t worth more than Clorox (and yes that’s a double negative), but rather that us simple folk don’t really understand what the word “valuation” means. You see, things like cash flow and operating costs are “less important than you might think”, as long as you’ve got “hockey stick” growth in some metric that you arbitrarily decided matters most for your company. As we went on to note, this is all part and parcel of the startup mentality, wherein VCs and founders are more focused on whatever Mark Zuckerberg or Jack Dorsey or Marc Andreessen or [fill in famous tech guru] said recently about how to grow your startup from 10 users to 10 billion rather than on how to generate revenue and profits. The problem with this is that while the Cloroxs of the world generate hundreds of millions in profits every three months, the Snapchats of the world.. well… don’t, and in the final analysis, it doesn’t matter if you have 10 trillion users if you can’t make any money.

Veritas's $5.5 Billion Debt Funding Carlyle LBO Said Pulled - (www.bloomberg.com) After two weeks of trying to peddle debt backing the largest private-equity buyout of 2015 Wall Street’s biggest banks have given up -- at least for now. Lenders led by Bank of America Corp. and Morgan Stanley postponed marketing $5.5 billion of loans and bonds they underwrote to finance Carlyle Group LP’s takeover of Symantec Corp.’s data-storage business as investors shy away from riskier corporate debt, according to two people with knowledge of the matter, who asked not to be identified because the information isn’t public. If the lenders can’t sell the debt by the deal’s scheduled close on Jan.1, they may be on the hook for the entire financing. The banks had tried to sweeten terms over the past week but failed to convince lenders wary about the amount of debt being piled onto Veritas, the unit being purchased.

LinkedIn’s Hoffman: Half of Tech ‘Unicorns’ May Not Succeed - (www.bloomberg.com) Reid Hoffman, the venture capitalist who co-founded LinkedIn Corp., said many private companies with multibillion-dollar valuations are unlikely to see those values recognized in the public markets. There are currently more than 140 closely held startups with valuations topping $1 billion, a designation that used to be so rare any company reaching it was known as a “unicorn,” according to a database by CB Insights. Hoffman expects that only a third to a half of these companies will actually “survive and thrive.” “Valuations are much higher than when companies go public,” Hoffman said in an interview with Bloomberg Television’s Emily Chang. “Public markets have a lot of interdependent feedback,” whereas private markets have big investors willing to do what they can to get in a deal -- meaning “it’s very easy” to get a high valuation, he said.

Expect a market meltdown before the 2016 election: Stockman - (www.cnbc.com) The markets are in for a "rough patch of time," at least according to market contrarian David Stockman. The Federal Reserve has reached a "ridiculous point" keeping interest rates this low for this long and it’s those policies that could spark a massive correction between now and the 2016 election, the former director of the OMB said Tuesday on CNBC's "Futures Now." "To be with emergency zero interest rates this late in the cycle has simply left the Fed between the biggest rock and hard place that I think is known in monetary history," he said. We're currently in month 83 of zero interest rates. "I suspect unless the market crashes between now and [December], they will have to raise interest rates by 25 basis points," added Stockman. "[But] they will try to say one and done and wrap it in incoherent Fed speech."

Carlyle's Unwanted Debt Exposes Growing Problem on Wall Street - (www.bloomberg.com) Investors who piled into anything and everything in the junk-debt market in recent years have begun to run in the other direction at the first sign of trouble. The turnabout has caught Wall Street’s biggest banks off guard and is increasingly leaving them on the hook for funding takeovers that investors want little part of. On Tuesday, Bank of America Corp. and Morgan Stanley were forced to shelve the debt package backing the year’s largest leveraged buyout -- $5.5 billion meant to fund Carlyle Group LP’s purchase of Veritas, Symantec Corp.’s data-storage business, according to two people familiar with the matter. “It’s very much a whipsaw market,” said Martin Fridson, chief investment officer at Lehmann Livian Fridson Advisors LLC. “Outside of a recessionary period, this has been pretty brutal.”

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