They provide free data-only sim cards. And you used to be able to sync all of your texts and calls in the hangout app, but they got rid of that. The last time I tried syncing the Messages app to a data o my device, it didn't work too well. That was a while ago though so not sure if that is still the case.
Swapping sim cards is probably too much of a hassle. You could just make the epaper phone your primary, and drag along the second phone as needed. Also, there is no reason an epaper phone can't take photos. Plenty of camera gear out there where the viewfinder/preview screen is a very poor preview of the final image and regardless, most folks just snap away with their phones and look at the images later. Modern smartphones do most of the work regarding camera settings.
I think they just load up on debt, so they aren't really buying it with their money. But what I don't understand is how they get people to loan them money when they know that they are just going to strip mine the company for all valuable assets and leave a shell of a company for the lenders to fight over.
> how they get people to loan them money when they know that they are just going to strip mine the company
Because on average, target firms of leveraged buyouts become more productive [1]. That lets them pay back shareholders and lenders in most cases.
The reason public perception is off is the size effect and availability heuristic. The first shows that big deals do badly [2]. The second means the last widely-reported deal is likely to stand in for private equity in the public consciousness [3]. Add in inflation, which makes each sticker price seem more historic than it is, and the fact that the last deal in a cycle is doubly cursed by being financed and priced at precisely the wrong time and you have a consistent pattern of the most recently-memorable deal being a clusterfuck.
Public perception is negative because profitability is usually reached by cutting unnecessary jobs and projects in the poorly run firm. People don’t like their jobs being cut
Here's the PDF so you can read more than just the abstract [1].
It's always hard to analyze anything this big, especially with something as vague as "more productive":
> First, employment shrinks more rapidly, on average, at target establishments than at controls after
private equity buyouts. The average cumulative difference in favor of controls is about 3 percent of initial employment over two years and 6 percent over five years. Second, the larger post-buyout employment losses at target establishments entirely reflect higher rates of job destruction at shrinking and exiting establishments. In fact, targets exhibit greater post-buyout creation of new jobs at expanding establishments. Adding controls for pre-buyout growth history shrinks the estimated employment responses to private equity buyouts but does not change the overall pattern. Third, earnings per worker at continuing target establishments fall by an average of 2.4 percent relative to controls over two years post buyout
So if I'm reading this right, huge layoffs followed by lots of churn with an overall decrease in salaries. But I must be missing something because the framing & wording seems to suggest that this is a positive thing. That paper also only looks at 2 years of data following acquisition. But the criticism for leveraged PE takeovers like this is that the PE firm is starting a 5-10 year project to strip mine the company for all it's worth and leaving a husk of a company that's loaded with the debt that was used to acquire it and no real assets. I'm not sure how looking at the first 2 years tells you anything.
The PE firm's switch to cheaper labor and suppliers is also reflected typically in a significant decrease in product quality which isn't analyzed here.
The main argument for leverage PE buyouts are they are performing a valuable service as they're doing a more graceful shutdown of a company vs letting the company fail on the public markets. But that's a harder argument when squarespace doesn't seem to be particularly struggling - they just IPOed during the pandemic bubble when internet stocks were crazy overvalued but they've been working their way back up.
> the PE firm is starting a 5-10 year project to strip mine the company for all it's worth and leaving a husk of a company that's loaded with the debt that was used to acquire it and no real assets
Long-term default rates for private-equity targets are low across markets [1]. Banks and leveraged-loan lenders tend to get paid back.
Also, most targets that later go public have low enough leverage to be able to immediately pay dividends [2]. You just don’t tend to hear about the specialty farm equipment maker IPO in most circles.
> that's a harder argument when squarespace doesn't seem to be particularly struggling
They’re turning hundreds of millions of dollars of revenue into hundreds of thousands of profits by spending hundreds of millions on sales and marketing.
> So if I'm reading this right, huge layoffs followed by lots of churn with an overall decrease in salaries. But I must be missing something because the framing & wording seems to suggest that this is a positive thing.
You read it right. Private Equity firms come in, and then lay off everyone they can and replace them with the cheapest folks possible, to churn down salaries and get rid of long-time staff with higher benefits costs. It's the classic playbook, and it's written here positively because if you're a soulless MBA beancounter, this is a positive thing. If you're a 50 year old engineer who is 12 years from retirement and just got a cancer diagnosis 6 months prior, it's not a good thing though.
For a leveraged buy out, the most important thing are the cash flows. So if a business has enough $ to service the loan there should be no problem.
Also good to remember that the business model of PE firms is to buy a leveraged asset, hold for 5 ish years, resale asset at a higher price than it was bought from. Ofc easier said than done, but these investors don’t get involved to lose money purpose
ALL LBO models are about selling the asset for a higher multiple than it was bought for. Not just tech.
Also, CFs are the most important thing for an LBO. The point of this investment model is for an asset to pay for itself, so if it has no cash flows how can it possibly do that. Also cash flows =/= profit here. You can be cash flow positive and not be profitable.
And you are right about LBOs not being done on rev multiples
I misspoke. Generally speaking, when modeling an LBO you assume entry = exit multiple to be conservative. What I meant to say is that in Tech, if you sell at the same, call it, 10x multiple on Revenue but your annual revenue grew some X% over the period, you can still get to a very compelling IRR even if the actual CF profile of the business hasn't improved at all. Obviously if you sell at a higher multiple that is doubly true.
The point is Tech companies don't strictly need profitability to be considered good LBO candidates, because everything is done at the top line level for the "sexier" very high growth companies.
The asset still "pays for itself" on exit, just not so much during the investment period. In other words, the value to equity holders is not from debt paydown with the assets' cash flows, but with the exit proceeds.
As a "forever renter" here are some of my thoughts on where things are headed (at least in the bay area, although some of this applies nationally).
1. The housing market is very thinly traded, illiquid market. Additionally there are some mechanisms in place that slow down price discovery on the way up (appraisal contingences based on comps), which slows down price discovery. This means it can take a few years to reach an equilibrium, which in a competitive market is roughly equal to the average mortgage that a pool of buyers can qualify for. This effect can result in a steady stream of year-over-year price gains, which often gets interpreted as "housing only goes up", when in reality, it is just the market adjusting to a small pool of buyers.
2. The bay area has a large contingency of high earning tech employees, large enough to entirely drive the housing market on their own, at least in the short term. This pool of buyers emerged about a decade ago, and have been increasing in numbers since then, at least until recently.
3. Incomes are not normally distributed, there is a bimodal distribution with the tech employees occupying one of the modals, and the rest of the population occupying the other[1]. Stats on this are difficult because the census tops out at $250k, but very roughly the top 5% average ~$560k, the top 20% average $315k, and the 80th percentile HH income is $176k. Medians would be preferred here, but I think you get the picture. By the time you get down to the 80th percentile, those folks are largely priced out of the market unless they go for a cheap condo or combine households. It is the top 5-10% of HH income earners that are driving the Bay Area market.
4. Baby boomers own about 40% of houses and have been the largest cohort of home buyers as of late. Boomers have been hanging onto, and even acquiring more homes abnormally late into their lives. I suspect this is most likely due to the booming housing and stock markets keeping a certain segment of boomers very flush with cash. But father time is going to start reversing this trend soon, and I wouldn't be surprised if a market crash forced a number of boomers to start selling sooner rather than later to keep retirement accounts whole, or even if "higher-for-longer" interest rates entice boomers to start moving assets into safer investments. But the point is, boomers are the largest participants in the market, and they are going to be moving from net buyers to net sellers very soon.
5. It seems like the tech wave has peaked and we have now entered the era of cost cutting. High salary FAANG jobs are harder to come by, and those same companies seem to be looking to move jobs elsewhere to save money. There will still be plenty of highly paid engineers in the Bay, but I suspect those numbers will slowly decline relative to the rest of the bay area.
6. Prop 13 has distorted the rental market considerably. A lot of landlords purchased their properties in 70's, 80's and 90's. These properties are have miniscule mortgages (if any) and pay barely any property tax. If you bought in the last ten years or so, you are mostly likely going to negative cash flow if you try to rent your property. Hardly worth it, especially when you can sell and put that money in T-Bills and make ~5%.
7. Despite the above distortions, median rents are roughly in line with median incomes for an HCOL area. i.e. The median rent is approximately equivalent to 30% AGI of the 60-70th percentile household income. That is not to say that rents are cheap or affordable, or that they can't go higher. It is just that they seem to be inline with what the market can bear. If the median landlord renting the median rental tries to price higher, they will push up against the glut of luxury rentals on the market, and if they price lower, they will probably find a large number of lower income folks living with roommates willing to make the jump to their own place. Barring any sudden major population changes, the rental market will probably track inflation for the near term.
8. And a bit of curveball here, but a law was recently passed that changes Prop 13 so that the property tax basis is no longer allowed to be passed down to heirs. This is likely going to result in a much larger share of homes getting sold (rather than stay as rentals) in the near future.
9. At least in the short term, population increases seem to be in the 5k range. Meanwhile ~20k new housing units were created. The +/- population numbers can change pretty quickly, but at least in the short term, we are adding more housing units than we are people. And keep in mind, the population changes are in terms of number of people, not number of households. So if an average household has three people, adding 20k housing units would support a population growth of 60k people.
So taking all of this into account, I am fairly bearish on the bay area housing market. There is probably enough inertia among the FAANG cohort to keep the market chugging along for a few years, but once they get settled in (and assuming the FAANGs don't resume the hiring craziness of a few years ago) we are going to start seeing the market impacts of the boomers unloading property and fully expect prices to drop or at the very least significantly underperform inflation. Meanwhile, rents are reasonably priced for a HCOL area. They will likely track inflation, but there are going to be pressures on both sides so they are unlikely to go up or down much more than where they currently are. For the last few years, my rent has been less than the PITI on an equivalent house. And the down payment that we have saved up over the years in now sitting in a Treasuries, the interest of which covers about half of our rent. I would like to buy someday, but I think I am going to wait until some of the above factors play out. And if not, well, I guess I will go live in a van.
I know plenty of millennial homeowners that would not be able to afford todays prices at current interest rates. They bought before the covid bump (or earlier) and could barely afford it then. Had they rented instead they would probably be locked out of the housing market, at least until they got a significant pay increase or some sort of windfall.
The house-price-to-income ratio has been historically high these last 1-2 decades, which will result in interest rates playing a bigger role in prices than they have in the past. Especially in the hotter coastal markets where affordability is a major issue. Part of this is structural as well, as most banks have strict debt-to-income ratios for their mortgages, so if interest rates go up, either incomes need to rise or prices need to come down to maintain the same level of demand.
Anecdote, but my wife and I dropped out of the market recently and rented instead. The rent was 30-40% cheaper than a mortgage would have been on a similar place (including taxes, insurance, etc...). So we figured we would just put the after-tax difference into a 401k (because 401k is pre-tax, for every dollar we 'saved' in housing cost, we are putting ~1.4 dollars into 401k). I figure that building equity in a house has similar investment timeline to the 401k, so it doesn't really bother me whether my net worth comes from one or the other, and unlike a house I can diversify the 401k via different index funds. In terms of ROI, the buy vs rent calculators are all starting to lean towards renting[1], so unless we are going to be in the same house for 12-15 years (unlikely) renting seems to win (and this assumes fairly good/neutral economic outlook, if you turn some of the knobs on the calculator to assume negative growth, oh boy...) .
Add to the fact that most folks don't really know how the new tax laws will impact them until they do the calculations early next year, and the fact the rising interests rates should put downward pressure on the market, and the rather volatile political situation (who really knows where this tariff thing is going to go, and how it will impact the economy), and it just made more sense to wait it out.
My house in Seattle has been appreciating by about $100k/year over the past five years. In other words, I'm making $100k/year on a $50k investment. You wont find returns like that in a 401k. And my interest payments are less than rent would be. Last but not least, home appreciation is TAX FREE up to half a million bucks.
By all means, max out the $20k or so you are allowed to put into a 401k, but don't fool yourself into thinking it will outperform what is essentially a government-subsidized leveraged investment. You have to have exceptionally bad timing or move very frequently to lose in real estate.
You're talking about unrealised profits. In order for the profits to be realised you need to sell the house. So what happens then? Either you keep the profits and are left without a house, or you buy another house and are left without a profit. Because, you see, it's not only your particular house that has appreciated, all houses have.
Yep. I own where I live in Seattle and some of my younger-than-me friends and colleagues are routinely "you're so lucky, you're sitting on a gold mine!"
Maybe so, but the sizzling hot housing market means I can't ever move to another place I own because, like you said, I'd have to take all of that appreciation and plow it right back into another property. Never mind that anything north of the ship canal is still completely unaffordable by my standards (that is, $450k or less, which is still a staggering sum of money in my world).
I'd much rather do like the grandparent and have those gains as actual money in a 401k, not theoretical money in a house that I'd have to practically leave the time zone to realize.
What you say is true only if you never downsize and never leave a hot market. Realistically most people will book those profits when they no longer need to live next to a job center. When you don't need that downtown job anymore you can sell a million dollar house in a big city and buy a nicer house for half that elsewhere, pocketing the other half million as pure, tax-free profit.
"What you say is true only if you never downsize and never leave a hot market."
What you say is true only if you know exactly when to downsize and leave a hot market.
It can be the case that housing will always be more valuable in one place than another. But it can't be the case that the rate of increase will always be dramatically higher, because that will lead to a runaway differential. Therefore you have to expect a correction at a time that is uncertain.
No, that's simply incorrect. The rising tide of inflation will lift expensive house prices more than inexpensive house prices. And no matter where you live, there is always a cheaper place you can go to when you sell your home. It's called a cost of living arbitrage.
What you say requires "timing the market". It's possible to get lucky and decide to retire at JUST the right time, have kids leave for college at JUST the right time, etc. More likely, the "hot market' will drop before you capitalize.
I rent in a neighborhood in Seattle that has homes that sell from anywhere between 700k to tens of millions, and a lot of houses that I'm looking at aren't selling. The market is so saturated with people trying to sell their homes for more than they are worth, which is a notable change in what is an extremely hot housing market.
You can't cash out unless you move out of the area or you downsize. And I may be wrong on this, but unlike CA (prop 13), your property taxes are going up.
And regarding timing, 5 years ago was probably one of the best times to buy a house on the west coast in the last few decades. That moment has passed. The reason I bring up the rent calculator, is because in most markets, at most times, that calculator will tell you to buy. Its the reason that I started considering buying ~2 years ago. But things have changed. Rents have been flat for about 3 years (at least in the Bay Area), while prices kept creeping up. So the way I see it, right now may qualify as 'exceptionally bad timing'. If the price-to-rent ratio is this out of whack, at the very least rental investors are going to head for the exits. My hunch is others (myself included) will exit as well. And the nice thing about renting, is I am only in a 1 year lease, so if I am wrong, and if the fundamentals change, I can jump back it the market.
I get what you are saying, but I think interest rates have a broader impact beyond just monthly payments. Real estate investors will start getting squeezed for example, so demand will dry up there. Also, I think downward prices impact the psychology of the market. Even if those price drops are entirely due to the rate increases (such that the monthly payment is the same), I imagine people will start getting nervous about jumping into a highly leveraged investment with falling prices, I know I would.
Anecdote, but if you hang out in the central/outer sunset neighborhood in SF, you will see this behavior. Tons of stop signs with limited access to thoroughfares in a quiet low-traffic neighborhood. I would say well over 25% of cars do rolling stops, and every now and then you will see a driver that doesn't even bother stopping.
I would say well over 25% of cars do rolling stops
Rolling stops in cars still tend to approximate the effect of a complete stop. Rolling stops on bikes tend to approximate the effect of the stop sign not being there at all. It's two different cost/benefit situations producing two different outcomes.
[Stanley Roberts' piece on this stop sign intersection gives the lie to this statement](https://www.youtube.com/watch?v=88neOxfa9IE). This isn't the only one he's done but it should be sufficient.
At least in SF, stop signs are proper optional. I see cars running them every day. It's just that when you see a car go 40 mph (5 over) and then slow down to 10 mph when it goes through it looks like it nearly stopped. When a cyclist goes from 15 mph to 10 mph it looks like he didn't do shit.
When I bicycle I stop fully at stop signs because I do it partly for exercise and I like practising the track stand, but I see people go through every day on my commute. If I were to bike in a hurry, I could see myself doing the slow down and treat-stop-as-yield.
Mostly there's a lot of bullshit on this topic, I've noticed. Somehow if you talk to drivers, they'll say things like "SF drivers don't know how to drive. They won't even see you before they go through a stop sign." then when the topic becomes cyclists v. drivers the narrative changes to how drivers turn into ever-correct rule followers. That seems to me that people are making an in-group v out-group distinction when they describe this, and appropriately changing their language.
I've got to tell you, I've seen it, and this "approximate the effect of a complete stop" is bullshit. Well, don't believe me, watch the video or wait at a busy trafficked intersection. (You can find good ones on the streets off Lincoln in the Sunset - heavily stop-signed and frequently violated)
Rolling stops in cars “approximate” full stops closer in the sense that 5–10 miles/hour is closer to 0 than it is to the 30 miles/hour they were traveling before.
By contrast, 5–10 miles/hour on a bike is about equally far from 0 and the 15 miles/hour the bike was traveling before.
The biggest difference though is that getting hit by a car doing a rolling stop will put you in the hospital and possibly kill you.
Perhaps I should clarify what I mean by rolling stop. The behavior I see is probably better described as a yield. The car will slow down, to 5-10 mph at the stop sign before accelerating back up to 25-35. I regularly walk through this neighborhood, and its outright dangerous. I feel much safer walking in downtown SF. My hunch is these drivers are mostly just looking for other cars and cops, as I have had a ton of close encounters as pedestrian. And to make matters worse, the streets are not very well lit at night.
The distinction seems to be that one bothers you more. The car, even if it is driven completely legally and comes to a complete stop always, is still creating more negative externalities than the bike, as long as the rider is paying attention.
You should look into an e-bike conversion. I do 14 miles a day, and just added a kit to my bike for about ~$500. For an extra 100-200 you can probably get a kit that covers 30 miles fairly easy. And the power/battery will probably be similar to what you get on those lower end scooters. I know UK has speed limits on e-bikes, so that is a consideration, but if you are in a unrban-ish area like me, your commute is probably more limited by traffic and stop lights than it is by top speed.
Yeah, that is a possibility. I'd have to avoid the most direct route though as that is fairly fast moving (Chertsey to Hammersmith in / around London). From memory I think the limit is only a few hundred watts. There is an ebike shop near me, I might pop in and see if they do test rides.
While technically true, the term of the loan matters. The government (and most companies that issue bonds) have revolving debt. I.e. they are continuously issuing new debt as existing debt expires. So while inflation theoretically makes your existing debt cheaper, it might not matter that much if you still need to rely on the debt markets in order to fund operations.
Swapping sim cards is probably too much of a hassle. You could just make the epaper phone your primary, and drag along the second phone as needed. Also, there is no reason an epaper phone can't take photos. Plenty of camera gear out there where the viewfinder/preview screen is a very poor preview of the final image and regardless, most folks just snap away with their phones and look at the images later. Modern smartphones do most of the work regarding camera settings.