Hertz, the original meme stock, is turning out to be worthless(bloomberg.com)
bloomberg.com
Hertz, the original meme stock, is turning out to be worthless
https://www.bloomberg.com/news/articles/2021-03-02/hertz-the-original-meme-stock-is-turning-out-to-be-worthless
320 comments
I think TSLA and AMD were the original meme stocks.
Those at least had a growth story.
HRTZ and GME are pure plays on the other hand.
HRTZ and GME are pure plays on the other hand.
Where did you get this about GME? It literally skyrocketed once Chewy team started to take over and transform company.
Personally, I think 80% of the reason it skyrocketed was for the short squeeze, 20% because of the new team and it being undervalued if you believed in that new team. $30-$40 seems reasonable if you believe the team is gonna turn the company around IMO, but people were putting thousands and tens of thousands into shares because they're hoping the short squeeze puts it to $1k+ (at least that's the meme/not a meme if you believe WSB).
It became a Ponzi effect where buying made the price go up and encouraged more buying. Short interest being so high helped a lot.
OK, what does that even mean?
They are a physical store that sells physical games.
Physical stores are in dire straits.
Some new game consoles don’t even use physical games, namely the base PlayStation and Xbox.
What do you even transform into? A dedicated amiibo shop? The future is pretty obviously download-only for games.
They are a physical store that sells physical games.
Physical stores are in dire straits.
Some new game consoles don’t even use physical games, namely the base PlayStation and Xbox.
What do you even transform into? A dedicated amiibo shop? The future is pretty obviously download-only for games.
Just random though - turn them to a gaming cafe. I could see how from time to time I will join with my friends to play something old school way. For younger it is also cool - escape parents home.
Not a bad idea.
Though, N=1, malls have pivoted (sorry) into that sort of live event space mode. When I was visiting family, the local mall had replaced a former anchor store with a really quite nice arcade.
Though, N=1, malls have pivoted (sorry) into that sort of live event space mode. When I was visiting family, the local mall had replaced a former anchor store with a really quite nice arcade.
With TSLA and AMD, people at least had a thesis. One may argue those were wild equity stories, but at least they existed.
Hertz is a dying company in a dying industry and while I admit I don't follow it closely, I have not seen anyone come up with a defensible story for why one should own that stock.
Hertz is a dying company in a dying industry and while I admit I don't follow it closely, I have not seen anyone come up with a defensible story for why one should own that stock.
AMD isn't a meme stock - I knew it was going to be a safe bet when it was at 5, but didn't have money to do anything with it.
It is guaranteed to exist, as it is the only x86 competitor to Intel, and IIRC their x86 license is non-transferable.
It is nvidia's only main competitor.
It does its job pretty well.
Is it a blue chip in terms of stability? Clearly it is a bit more volatile. But it isn't dying anytime soon.
It is guaranteed to exist, as it is the only x86 competitor to Intel, and IIRC their x86 license is non-transferable.
It is nvidia's only main competitor.
It does its job pretty well.
Is it a blue chip in terms of stability? Clearly it is a bit more volatile. But it isn't dying anytime soon.
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I give myself one good hard slap to the face every morning, because I bought AMD in the ~$5/share range, and then sold when it managed to get to ~$7/share because I didn’t think it was going anywhere. And then I go stand at the window and gaze longingly at my imaginary WRX parked outside.
Sigh. If I only had known exactly how badly Intel would do…I bought the stock because I figured they’d get a little bump because of console sales, and then got impatient.
Sigh. If I only had known exactly how badly Intel would do…I bought the stock because I figured they’d get a little bump because of console sales, and then got impatient.
It’s all gambling. People need to stop expecting to strike it rich and just build wealth incrementally. Central banks have made that hard to do though with historically low interest rates and rising risks of inflation.
Mind you, the vast majority of my retirement money is in index funds and other boring investment vehicles.
The AMD trade was (reasonable) fun money.
The AMD trade was (reasonable) fun money.
Sounds like advice for a previous generation. Then, it contradicts itself by say why it won't work (correctly). Maybe its time to rethink those half-century-old memes like 'build wealth incrementally'.
“This time it’s different”
Nothing has changed except central bank policy encouraging rampant speculation. The bull market won’t last forever and every generation thinks the fundamentals don’t matter anymore, until suddenly they do. To be fair it is extremely hard to build wealth incrementally these days because of central bank policy, but it’s way better than yoloing life savings.
Nothing has changed except central bank policy encouraging rampant speculation. The bull market won’t last forever and every generation thinks the fundamentals don’t matter anymore, until suddenly they do. To be fair it is extremely hard to build wealth incrementally these days because of central bank policy, but it’s way better than yoloing life savings.
Is it possible the bull market reflects the realities of big businesses, and tech businesses especially, reaping the rewards of automation and scalability and near zero marginal costs?
Anything is possible. That's probably true for Apple and Amazon but those are the exception. That's definitely not true for Uber, who lost 8.5 Billion (!) from operations in 2019: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001543151/f272e03... Not true for WeWork either: https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
Maybe those are exceptions too but seems like the most hyped companies have not brought marginal costs near zero.
Maybe those are exceptions too but seems like the most hyped companies have not brought marginal costs near zero.
What does "most hyped" mean? Why does WeWork matter at all in this discussion? They got destroyed for having weak prospects when they tried to come near the public markets.
I'm looking at this list of the S&P 500 companies, and they mostly have very solid earnings and fundamentals:
https://fknol.com/list/market-cap-sp-500-index-companies.php
I went through the top 100 companies, and the only one that is a "bet" is Tesla, except they have many, many cars on the road and have been delivering product that people want to buy.
If anything, I'm even more bullish for all these huge companies, as absent any government action (which I doubt), who is going to take them on? They will continue to go vertical and eat each other's business, maybe. But that doesn't really affect you if you're holding the whole index fund ETF.
I'm looking at this list of the S&P 500 companies, and they mostly have very solid earnings and fundamentals:
https://fknol.com/list/market-cap-sp-500-index-companies.php
I went through the top 100 companies, and the only one that is a "bet" is Tesla, except they have many, many cars on the road and have been delivering product that people want to buy.
If anything, I'm even more bullish for all these huge companies, as absent any government action (which I doubt), who is going to take them on? They will continue to go vertical and eat each other's business, maybe. But that doesn't really affect you if you're holding the whole index fund ETF.
Well the S&P is an index of the largest companies so they're going to be more solid than the rest of the market. WeWork was attempting an IPO and had a ton of hype, if that hype was because of improvements on marginal costs you would have seen it there. The S&P 500 PE ratio is objectively high right now. Whether it's high because of strong fundamentals or bubble effects is the million dollar question.
https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...
Respectfully those are meme stock arguments. A company can have all those things and be worth between 0 and 1 trillion, the question is whether the company is valued accurately by the markets and worth the price.
Tesla is valued at what Apple was in 2019, but hasn’t made any profit ever without tax credits. AMD is at $100 billion, which seems high but could be worth it. Doesn’t matter if they mismanage cash and have to be acquired though.
Tesla is valued at what Apple was in 2019, but hasn’t made any profit ever without tax credits. AMD is at $100 billion, which seems high but could be worth it. Doesn’t matter if they mismanage cash and have to be acquired though.
This is starting to feel like a moral crusade when that investment reasoning is consided meme/speculative arguments. I know retirement planners who manage 200m in asse6s who have been in business for 30+ years who look at the same reasonings as that. You cant really find an undervalued stop without some sort of assumptions. Might as well just buy an index fund.
It is a moral crusade to try to get people to understand risk. I can go all in on TSLA call options and make a killing and think I understand how markets work, but the risk I’m taking on by doing that is ridiculous. I’d like to know how those 30 year experience retirement planners did in 01 or 08. Bubbles happen because investors become comfortable taking huge risks that are unlikely to happen, but when they do they get crushed. Picking up pennies on front of a steamroller.
No, they're stock arguments. They're "fundamentals". Did I look at their balance sheet, no. But asking questions about their competition and likelihood of being around and healthy in a few years isn't meme.
Even "Hey this has short 140% of float" isn't a meme stock thing.
The definition of "meme" stock is it being a meme - is it getting hyped up on social media and reddit with inside jokes and collective action (as much as they pretend it isn't collective action).
Even "Hey this has short 140% of float" isn't a meme stock thing.
The definition of "meme" stock is it being a meme - is it getting hyped up on social media and reddit with inside jokes and collective action (as much as they pretend it isn't collective action).
If you didn’t look at the balance sheet I don’t see how you can claim to care about fundamentals. The company’s ability to be in business in a few years depends on how much cash they have and how much they can generate. If the market tanks financing dries up, and if they aren’t cash flow positive then it’s game over.
Whether people like the product or not and how they compare to competition only matters if they have cash figured out. Anybody can sell a dollar bill for $0.80 and have a fantastic product, doing it profitably is the trick. WeWork is probably the best example, entering high risk long term leasing commitments and subleasing that space at a loss. They were bid up to an insane $40 billion valuation based on just this, until they tanked pre IPO. Now with the low probability, high impact risk of a global pandemic coming about, they’re struggling to survive and I’m surprised aren’t bankrupt yet. Still have a better product than the competition though.
Whether people like the product or not and how they compare to competition only matters if they have cash figured out. Anybody can sell a dollar bill for $0.80 and have a fantastic product, doing it profitably is the trick. WeWork is probably the best example, entering high risk long term leasing commitments and subleasing that space at a loss. They were bid up to an insane $40 billion valuation based on just this, until they tanked pre IPO. Now with the low probability, high impact risk of a global pandemic coming about, they’re struggling to survive and I’m surprised aren’t bankrupt yet. Still have a better product than the competition though.
> The company’s ability to be in business in a few years depends on how much cash they have and how much they can generate. If the market tanks financing dries up, and if they aren’t cash flow positive then it’s game over.
Sure, and these considerations are all things that are downstream of product, competitive positioning and IP.
Sure, and these considerations are all things that are downstream of product, competitive positioning and IP.
>"They're "fundamentals". Did I look at their balance sheet, no."
Please for the love of god tell me you are trolling right now.
Please for the love of god tell me you are trolling right now.
Not quite. I looked at a small piece of a picture, and the parent is accusing me of reading a reddit thread and going "ape strong, AMD to the moon".
What I didn’t say that. I said those are meme stock arguments, which they are. Surface level factors that may or may not matter but don’t give the whole picture of cash flow which is ultimately what matters.
With AMD you have the clear competitors Intel and Nvidia with their respective market share, revenue and valuation.
There was a real world reason for their low valuation (Bulldozer) and a real world reason for there stock to recover (Zen). Intel had been stagnant for years and their 10nm was obviously not working. With AMD's and Jim Keller's track record there was a reasonable case for them managing to catch up and their stock to rise accordingly. If those are meme arguments the whole market is a meme.
No what you don't understand is that no one else in the market had caught on to the fact that AMD was the main competitor to Intel!
If only we had known way back when!
If only we had known way back when!
And clearly Intel's products aren't working, can they even make processors?
Because a company is going to exist doesn't mean it's going to jump 10x+ in value in a few years.
I remember following the WSB AMD memery several years ago and no one really predicted what would actually happen over the ensuing years.
Intel shit the bed on some key foundry investments and AMD had some chip breakthroughs to capitalize on their screwup.
So yeah, some people ended up being right that AMD would do well but I never saw anyone predict WHY.
ANd I can point you to many many that were predicted to do gangbusters and never amounted to anything, funny those always get forgotten.
I remember following the WSB AMD memery several years ago and no one really predicted what would actually happen over the ensuing years.
Intel shit the bed on some key foundry investments and AMD had some chip breakthroughs to capitalize on their screwup.
So yeah, some people ended up being right that AMD would do well but I never saw anyone predict WHY.
ANd I can point you to many many that were predicted to do gangbusters and never amounted to anything, funny those always get forgotten.
The South Sea Company was the original meme stock.
That's kind of misrepresenting what the South Sea Bubble was, with meme stocks the public are at least in on the joke, the South Sea Bubble was a private conspiracy/social phenomenon of a different fashion.
Reading some of the comments here it's pretty clear the many truly believe the GME hype: that it was somehow something more than a short squeeze, and that it is magically going to transform into a business with revenue able to support its current valuation.
AMD was not a meme. If anything it was a proxy for TSMC doing well.
The business case was apparent, and it happened: Intel apparently decided to get to their next node using, I don’t know, a magnifying glass and a flashlight, they fell badly behind, and now AMD has an extremely solid position in the high-end enthusiast market, plus a plum spot in PlayStation and XBox sales.
The business case was apparent, and it happened: Intel apparently decided to get to their next node using, I don’t know, a magnifying glass and a flashlight, they fell badly behind, and now AMD has an extremely solid position in the high-end enthusiast market, plus a plum spot in PlayStation and XBox sales.
It's always interesting how the great investments are always so obvious looking in the rear view mirror.
Talking about the idea that AMD was a meme stock on HN seems strange. There were long discussions here before the AMD stock price rise about the technical merits of their platform, and further discussions about how they were getting better and better distribution after it did release.
These are pretty fundamental reasons why a stock price might be likely to go up.
These are pretty fundamental reasons why a stock price might be likely to go up.
Obviously?
The company was bankrupt.
People who bought HRTZ after bankruptcy had to have known it was a game of financial musical chairs, much like GME, TSLA or BTC.
The company was bankrupt.
People who bought HRTZ after bankruptcy had to have known it was a game of financial musical chairs, much like GME, TSLA or BTC.
GME is not bankrupt yet (it is indeed overpriced and comparable to HRTZ), but TSLA and BTC? They don't belong to the same categories. TSLA and BTC will see a lot of gains to come. Eventually without a definite date what goes up comes down but it'd be silly to not take a piece of the pie yourself and keep your savings in cash...
BTC is not a stock so I really don't follow why people keep treating it like it has some underlying value
Like most stocks BTC's value depends on the buyers hope of a rise of the value. Buy low and sell high.
For the original function of stocks, support a company and get a share of the profit, you are right about BTC.
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That’s not really an accurate comparison. Stocks are ownership in a company, which is still subject to all of the realities of operating a company. We can’t simply continue trading Hertz stock as a speculative gamble when the company goes under.
Yes, cycles of hype and supply and demand do distort stock prices, but it’s still a capital allocation market. GameStop can choose to sell shares into the hot market, much as AMC did, to raise money. Buyers of those shares are allocating capital into the company.
One of the draws of Bitcoin as a speculative instrument is that there are no fundamentals. Without fundamentals, there is no mechanism to suggest if it’s undervalued or overvalued. The only thing a Bitcoin purchase funds is more energy expenditure on mining.
Yes, cycles of hype and supply and demand do distort stock prices, but it’s still a capital allocation market. GameStop can choose to sell shares into the hot market, much as AMC did, to raise money. Buyers of those shares are allocating capital into the company.
One of the draws of Bitcoin as a speculative instrument is that there are no fundamentals. Without fundamentals, there is no mechanism to suggest if it’s undervalued or overvalued. The only thing a Bitcoin purchase funds is more energy expenditure on mining.
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> We can’t simply continue trading Hertz stock as a speculative gamble when the company goes under.
What? Why not?
Not only can we continue to trade stock in a defunct corporation, we do. Take a look over here: https://www.liveauctioneers.com/item/85889867_imperial-india...
What? Why not?
Not only can we continue to trade stock in a defunct corporation, we do. Take a look over here: https://www.liveauctioneers.com/item/85889867_imperial-india...
That's trading the stock certificates, not the stock itself. Nowadays there aren't any stock certificates anymore so that point is kind of moot. I doubt you can still trade enron shares, for instance.
The certificates still exist; the fact that you don't get one when you buy stock just reflects the fact that you don't technically own the stock. US stocks were not dematerialized.
I don't mean to quibble but I would say that even though bit coin is not a quote unsuited real currency you can apply purchasing powrr parity valuation to it and compare purchasing power of bitcoin compared to other currency like instruments additionally the cost to mint a bit coin is not meaningless, just easy to neglect.
The "original function" of stocks hasn't gone away. The S&P 500 paid out half a trillion dollars in dividends last year, and performed another half trillion or so in stock buy-backs.
Trading happens on the pure derivative of stock prices, yeah, and people get rich off of it, sure, but ignoring the trillion dollars a year that flows from the profits on the economic activities of the S&P 500 back to the investors in the stock is ... oversimplifying things.
Trading happens on the pure derivative of stock prices, yeah, and people get rich off of it, sure, but ignoring the trillion dollars a year that flows from the profits on the economic activities of the S&P 500 back to the investors in the stock is ... oversimplifying things.
How does that come with the sum of all monies lost on trading with S&P500 shares? Serious question.
The sum of all monies lost trading S&P500 shares should be negative, since the index as a whole was up. Which isn't to say it'll be up forever, but over a scale of years it has historically always been up. Even if you lost money trading S&P 500 shares, somebody else made more, which is why the index is up.
Even so, that figure isn't really relevant to the GP's point. Their point was that in addition to the price of the stocks, people who owned those stocks got cash money paid into their pockets, via dividends. That amounts to about 1.1% interest on money you spend buying the shares[1].
(That's not actually a great number. 2% is more common over the last 20 years. It suggests that as of right now the market is overpriced. But that's also for 2020, which is not a typical year. So far for 2021, it's more like 1.5%)
[1] https://www.multpl.com/s-p-500-dividend-yield
Even so, that figure isn't really relevant to the GP's point. Their point was that in addition to the price of the stocks, people who owned those stocks got cash money paid into their pockets, via dividends. That amounts to about 1.1% interest on money you spend buying the shares[1].
(That's not actually a great number. 2% is more common over the last 20 years. It suggests that as of right now the market is overpriced. But that's also for 2020, which is not a typical year. So far for 2021, it's more like 1.5%)
[1] https://www.multpl.com/s-p-500-dividend-yield
When you factor in stock buybacks -- which are sort of but not quite the same as dividends -- it's "sort of" like 3%.
(My vague understanding is that for complicated and silly reasons, many more companies have preferred stock buybacks to dividends in recent decades, but it's still money flowing back from companies to investors.)
(My vague understanding is that for complicated and silly reasons, many more companies have preferred stock buybacks to dividends in recent decades, but it's still money flowing back from companies to investors.)
That's a very good point. Thank you; I had missed that.
There are two factors. The tax code favors one form of compensation and low interest rate money means it is actually possible to execute this strategy. When companies borrow money to skip taxes you know that the central bank isn't doing its job properly.
BTC is a commodity and trades like one. fundamental value is hashed electricity... not much, but guess it counts as something for somebody.
for traders, it's something that has a ticker, a price and some volume. whatever works.
for traders, it's something that has a ticker, a price and some volume. whatever works.
Production costs don't equal value of the product. You can certainly spend more on making something than it is worth. BTC has no intrinsic value. It has some utility, but mostly in the realm of illegal activities. But that is not the same thing as intrinsic value.
I mean, there's an argument for viewing Tesla and Gamestop similar to bitcoin; they clearly have _some_ underlying value, but it seems largely secondary to hype-induced valuation.
It sort of has underlying value, in that owning bitcoin lets you write entries in an extraordinarily inefficient append-only database.
(It seems clear to me that this isn't a valuable enough capability to justify the current price of BTC, but I guess that's a separate discussion.)
(It seems clear to me that this isn't a valuable enough capability to justify the current price of BTC, but I guess that's a separate discussion.)
At the end of the day, people are betting on what they believe (or throwing away their money for the lulz).
I genuinely, no bullshit, think TSLA is more irrational than GME, and has been for years. I put my money where my mouth is and I'm up 5x in 2 weeks. I know it won't last, but hey TSLA is crashing too. Nothing lasts forever.
I genuinely, no bullshit, think TSLA is more irrational than GME, and has been for years. I put my money where my mouth is and I'm up 5x in 2 weeks. I know it won't last, but hey TSLA is crashing too. Nothing lasts forever.
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Indeed nothing lasts forever but TSLA at least has something to show while GME's business is passé. TSLA is overpriced but at the moment it crashed and will jump back to new heights. Why not take advantage of the notoriety and make a gain yourself?
I think it's obvious that I am holding a substantial amount of GME right now, and I think I should disclose that.
Ryan Cohen, the guy who founded Chewy, is on the board for GME and leading an initiative to transform Gamestop into an e-commerce store. In other words he wants to compete directly with Steam, and while many don't realize it yet, Amazon. And this is one of the only people in history who has successfully beat Amazon in a product category before. Chewy absolutely dominated the pet market for e-commerce.
What I think Gamestop should do is compete directly with twitch, and set up an online game store on top of that. Basically do what twitch is doing but better, because twitch is shockingly bad for an Amazon acquisition. Then Gamestop could host online game tournaments, and they could even draw attention at local brick-and-mortar stores. They've got the real estate, they've got the brand recognition, and they've got the goodwill of the public right now (which is something you can't even buy, Amazon doesn't have that even with a trillion dollar market cap).
I don't think this will happen. But if it did, GME would be ridiculously undervalued right now.
Ryan Cohen, the guy who founded Chewy, is on the board for GME and leading an initiative to transform Gamestop into an e-commerce store. In other words he wants to compete directly with Steam, and while many don't realize it yet, Amazon. And this is one of the only people in history who has successfully beat Amazon in a product category before. Chewy absolutely dominated the pet market for e-commerce.
What I think Gamestop should do is compete directly with twitch, and set up an online game store on top of that. Basically do what twitch is doing but better, because twitch is shockingly bad for an Amazon acquisition. Then Gamestop could host online game tournaments, and they could even draw attention at local brick-and-mortar stores. They've got the real estate, they've got the brand recognition, and they've got the goodwill of the public right now (which is something you can't even buy, Amazon doesn't have that even with a trillion dollar market cap).
I don't think this will happen. But if it did, GME would be ridiculously undervalued right now.
Competing with Twitch is not realistic and I’m surprised you think it’s bad. Facebook and Microsoft have both spent huge sums of money trying to and failed. And both those companies have deep engineering talent which GameStop does not and it will not be trivial to compete with those companies for engineers. Plus livestream is just really expensive in terms of compute and network costs. Finally and most importantly, Twitch has more network effects than people realize with its follower/subscriber ecosystem. Streamers spend a lot of time building that audience and make more money than you might expect when they do it, so it won’t be easy to pull them away.
Everybody I know that uses twitch hates it. Like seriously, it's really bad. The conversations streamers have on discord are very different from what they'll say while streaming. They use it because there is no alternative. I am well aware that others have tried to compete and failed.
But there is a market and nobody likes the only player. Eventually somebody is going to figure it out. And I am extremely confident it won't be Amazon. I'd short twitch in a heartbeat if it weren't propped up by the most valuable company on Earth.
But there is a market and nobody likes the only player. Eventually somebody is going to figure it out. And I am extremely confident it won't be Amazon. I'd short twitch in a heartbeat if it weren't propped up by the most valuable company on Earth.
What in particular do they hate about twitch and what type of streamers are they? (top, emerging, casual, etc).
I too hear a lot of complaints about Twitch too but I feel that most of them have nothing to do with the product, but the zero-sum and competitive nature of gaming streaming. It's just difficult to succeed as a gaming streamer (or content creator more generally) and the vast majority of people who try will never make any meaningful amounts of money, so frustrations tend to be attributed to the arbitrary quirks of the platform, even though that's just the nature of any content business.
I too hear a lot of complaints about Twitch too but I feel that most of them have nothing to do with the product, but the zero-sum and competitive nature of gaming streaming. It's just difficult to succeed as a gaming streamer (or content creator more generally) and the vast majority of people who try will never make any meaningful amounts of money, so frustrations tend to be attributed to the arbitrary quirks of the platform, even though that's just the nature of any content business.
> What in particular do they hate about twitch and what type of streamers are they? (top, emerging, casual, etc).
Everything and everyone. Seriously, even the people making literally millions on twitch hate the DMCA takedowns, the completely capricious bans, the ridiculous barrage of forced ads which twitch has straight up lied about, the fact that Amazon streamed anti-union ads on twitch and then pretended it was an accident, the fact that titty streamers get special priveleges...and that's what I thought of in just 30 seconds off the top of my head.
twitch is fucking awful because it's owned by Amazon. It was great before the acquisition and shortly thereafter.
I never said it was easy. I'm saying twitch fucking sucks and when somebody makes something that doesn't suck it will instantly be an 11 digit market cap company. Right now the most likely contender is Gamestop, even if I'd only put that at about a 1% chance of happening.
Everything and everyone. Seriously, even the people making literally millions on twitch hate the DMCA takedowns, the completely capricious bans, the ridiculous barrage of forced ads which twitch has straight up lied about, the fact that Amazon streamed anti-union ads on twitch and then pretended it was an accident, the fact that titty streamers get special priveleges...and that's what I thought of in just 30 seconds off the top of my head.
twitch is fucking awful because it's owned by Amazon. It was great before the acquisition and shortly thereafter.
I never said it was easy. I'm saying twitch fucking sucks and when somebody makes something that doesn't suck it will instantly be an 11 digit market cap company. Right now the most likely contender is Gamestop, even if I'd only put that at about a 1% chance of happening.
I don't see how any of these are deal-breakers for the viewers and if the viewers are there, the streamers aren't going anywhere. The network effect is real - it doesn't matter how good your streaming platform is if no one is using it.
People are leaving twitch because it's so bad. Unfortunately I can't share that data with you, so I don't expect you to believe me.
Anyway, let's agree to disagree because we're not finding common ground here.
Anyway, let's agree to disagree because we're not finding common ground here.
Where are they going?
> even the people making literally millions on twitch hate the DMCA takedowns, the completely capricious bans, the ridiculous barrage of forced ads which twitch has straight up lied about, the fact that Amazon streamed anti-union ads on twitch and then pretended it was an accident, the fact that titty streamers get special priveleges..
Why would GameStop not do these things? They wouldn't be immune to copyright problems. They'd surely need to implement automated ban systems. They'd surely need to advertise. They'd surely want to make money on "titty streamers".
Why would GameStop not do these things? They wouldn't be immune to copyright problems. They'd surely need to implement automated ban systems. They'd surely need to advertise. They'd surely want to make money on "titty streamers".
This is a very poor assessment. I'd suggest watching some Devin Nash videos. Whoever you're talking to on discord is not giving you a complete picture.
Twitch is essentially a hardcore user's platform. Engagement is extremely high vs other platforms. That's what keeps content creators on twitch, even if they're making the bulk of their income from putting the VODs on youtube: they can't create the same content and interactions on other platforms.
Again, as explained in a sibling comment, competing against twitch is a terrible opportunity. It's a miserable business to try to make a profit margin on, and your #1 competition doesn't care if twitch loses money all day. The ad market for streamers is all wonky because so much of the content is radioactively toxic.
Twitch is essentially a hardcore user's platform. Engagement is extremely high vs other platforms. That's what keeps content creators on twitch, even if they're making the bulk of their income from putting the VODs on youtube: they can't create the same content and interactions on other platforms.
Again, as explained in a sibling comment, competing against twitch is a terrible opportunity. It's a miserable business to try to make a profit margin on, and your #1 competition doesn't care if twitch loses money all day. The ad market for streamers is all wonky because so much of the content is radioactively toxic.
>> Facebook and Microsoft have both spent huge sums of money trying to and failed.
That does not mean it is not possible, it is not shocking to me that large institutions like Facebook and MS could not compete even with their deep pockets.
you seem to have conflated Money with creativity, and/or vision.
it will not be a Microsoft of Facebook that will topple twitch or you tube, it will be a startup of some kind that is completely removed from Corporate culture and the extreme chains on innovation that large companies have
That does not mean it is not possible, it is not shocking to me that large institutions like Facebook and MS could not compete even with their deep pockets.
you seem to have conflated Money with creativity, and/or vision.
it will not be a Microsoft of Facebook that will topple twitch or you tube, it will be a startup of some kind that is completely removed from Corporate culture and the extreme chains on innovation that large companies have
> I don't think this will happen.
Do you mean you don't think they'll compete with Twitch, or you don't think they'll compete with Steam and Amazon?
Personally I think investing in GME today is no different than investing in Blockbuster ten years ago. Competing with Steam is a terrible idea. EA tried it with Origin and despite having huge exclusive franchises, they're essentially throwing in the towel by abandoning the Origin branding and moving their newest titles back to Steam. There are also few physical goods to ship anymore so the experience in selling pet supplies online is irrelevant. Something like 80% of PS5s sold are the digital-only model; they don't even have a disk drive (and 99% of modern PCs don't have one either.)
Most of GameStop's profit was on used games. A game would get purchased, completed in a few days, then sold back to GameStop. When GameStop re-sells it as used, that's pure profit; the original publisher doesn't get a cut. Rinse and repeat a few times and within a few weeks of the launch of a game, GameStop has made more money off of it than the game developers. This is no longer possible with digital game sales. These games are locked to accounts and cannot be individually transferred. (And if you think GameStop's digital storefront will support game resales to try to capture this profit, no publisher in their right mind would publish their games on it!)
Do you mean you don't think they'll compete with Twitch, or you don't think they'll compete with Steam and Amazon?
Personally I think investing in GME today is no different than investing in Blockbuster ten years ago. Competing with Steam is a terrible idea. EA tried it with Origin and despite having huge exclusive franchises, they're essentially throwing in the towel by abandoning the Origin branding and moving their newest titles back to Steam. There are also few physical goods to ship anymore so the experience in selling pet supplies online is irrelevant. Something like 80% of PS5s sold are the digital-only model; they don't even have a disk drive (and 99% of modern PCs don't have one either.)
Most of GameStop's profit was on used games. A game would get purchased, completed in a few days, then sold back to GameStop. When GameStop re-sells it as used, that's pure profit; the original publisher doesn't get a cut. Rinse and repeat a few times and within a few weeks of the launch of a game, GameStop has made more money off of it than the game developers. This is no longer possible with digital game sales. These games are locked to accounts and cannot be individually transferred. (And if you think GameStop's digital storefront will support game resales to try to capture this profit, no publisher in their right mind would publish their games on it!)
> Do you mean you don't think they'll compete with Twitch, or you don't think they'll compete with Steam and Amazon?
I do not think Gamestop is going to compete with twitch. I will be very surprised if they do not try to compete with Steam.
I do not think Gamestop is going to compete with twitch. I will be very surprised if they do not try to compete with Steam.
This is just crazy though as GameStop has no demonstrated capabilities or plan to compete with Steam. They don’t make good software, they don’t have content or publishing experience.
I mean they can say they want to, so can McDonalds. But their plan is magical thinking and not sure why folks fall for this.
The worst but though is that they have a terrible reputation with gamers. Every gamer I know hates them. Some shop there like some tolerate Comcast, but they don’t have a fan base.
I mean they can say they want to, so can McDonalds. But their plan is magical thinking and not sure why folks fall for this.
The worst but though is that they have a terrible reputation with gamers. Every gamer I know hates them. Some shop there like some tolerate Comcast, but they don’t have a fan base.
Does twitch even stream games anymore? ;)
> Chewy absolutely dominated the pet market for e-commerce.
Indeed, I think we get as many Chewy boxes as Amazon boxes. Of course three dogs and three cats will do that.
Chewy used to send every customer a handwritten personalized Christmas card each year. I think they had every employee spend some time writing these cards when they weren't busy.
Later they switched to printed cards using a handwriting font, but those early years of handwritten cards certainly left an impression.
Indeed, I think we get as many Chewy boxes as Amazon boxes. Of course three dogs and three cats will do that.
Chewy used to send every customer a handwritten personalized Christmas card each year. I think they had every employee spend some time writing these cards when they weren't busy.
Later they switched to printed cards using a handwriting font, but those early years of handwritten cards certainly left an impression.
You're basing the valuation on Gamestop being able to build, market and compete with twitch/amazon, when they've expressed 0 plans to do so, and are unable to even maintain a website?
https://www.gamestop.com/ (down all morning)
How does any of this change GME's valuation? Any company can decide to get into anything - the existence of an opportunity that everyone is aware of doesn't impact the company's valuation unless the company's uniquely suited to exploit the opportunity. I don't see how GameStop is particularly well-situated to take advantage of e-commerce or streaming opportunities. They don't have any unique offerings or substantial online presence. They obviously don't have any real tech or product talent or expertise. They also primarily deal with console games and all new consoles lock you into their own online store. They are suddenly going to compete for 2nd place for PC games?
And, Ryan Cohen has no operational role at the company and changing an existing company is very different from building a new one. It's not just having some grand vision, but having the culture and talent to execute on it at every level. And it's unclear Ryan Cohen himself would have any particular expertise here - selling digital goods is very different from selling physical goods.
And, Ryan Cohen has no operational role at the company and changing an existing company is very different from building a new one. It's not just having some grand vision, but having the culture and talent to execute on it at every level. And it's unclear Ryan Cohen himself would have any particular expertise here - selling digital goods is very different from selling physical goods.
>I don't see how GameStop is particularly well-situated to take advantage of e-commerce or streaming opportunities
I don't massively disagree, but perhaps you underestimate the prevalence of their brand right now. Gamestop is salient in the gaming and internet communities.
What of 'irrational' consumer behavior?
I don't massively disagree, but perhaps you underestimate the prevalence of their brand right now. Gamestop is salient in the gaming and internet communities.
What of 'irrational' consumer behavior?
Twitch in essence is a giant ad for Prime. That's it. It's doing exactly what they want. It's a terrible business to try and make profitable as its own silo, which is why mixer et all have failed.
The only thing happening with GME is some opportunistic behavior around their sudden unexpected ability to raise speculative capital. Jeff Bezos himself could take over GME and there is zero chance it's going to become some sort of online ecommerce competitor to steam. They have absolutely no comparative advantage for that. All that's happening is GME management finding every way they can to redirect this influx of cash into their bonuses.
The only thing happening with GME is some opportunistic behavior around their sudden unexpected ability to raise speculative capital. Jeff Bezos himself could take over GME and there is zero chance it's going to become some sort of online ecommerce competitor to steam. They have absolutely no comparative advantage for that. All that's happening is GME management finding every way they can to redirect this influx of cash into their bonuses.
I agree that TSLA is irrational, and I think that this is true regardless of whether you think there are more gains to come. My impression of TSLA investors is that many of them just want to be a part of the future, and many others are trying to make money off the volatility & irrationality.
I think the cult of personality plays a part in it, too. Tesla makes cool, futuristic cars and has a rabid user base (and even a rabid fan base of people who can’t afford to be users) but even still I don’t think the valuation would be anywhere near where it is today without all of the Musk super fans & Musk initially fanning the flames with his war against short-sellers.
Yes. Weird effects in the stock market just reflect consumer interest in the stock market. If you think Michael Jordan is cool, you express that by buying his shoes. If you think Elon Musk is cool, you express that by buying his stock. But that's not a comment on the value of the stock. It's branding.
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GME is going back up right now. I don’t believe it’s disenfranchised Reddit young people anymore (if it ever was?).
I guarantee there’s hedge funds who infiltrated the group playing up this one. Fictional fresh faced MBA from Jamie Diamond‘s outfit, “too the moon homie. Hold forever. They can take my wife, but not my GME. We tards are bringing down Capatalism.” (I used the T word because that the vernacular they use.)
I find it sad that the Retail naive investors will get fleeced again, but by professional billionaire trading outfits.
I guarantee there’s hedge funds who infiltrated the group playing up this one. Fictional fresh faced MBA from Jamie Diamond‘s outfit, “too the moon homie. Hold forever. They can take my wife, but not my GME. We tards are bringing down Capatalism.” (I used the T word because that the vernacular they use.)
I find it sad that the Retail naive investors will get fleeced again, but by professional billionaire trading outfits.
No one from JPM or even big hedge funds was involved -- this is the one single thing that compliance and legal departments would be all over, so any well-regulated outfit with a compliance department would have staid well away from pump&dump. (The JPMs and Citadels made money from market making on stocks and options - there they made a year's worth of profits in a week.)
You are likely right that finance bros were (and still are) behind the polished 24/7 rocket memes, but they were likely small single-PM funds and non-regulated private players, posting behind 7 proxies to provide anonymity and plausible deniability against the SEC.
You are likely right that finance bros were (and still are) behind the polished 24/7 rocket memes, but they were likely small single-PM funds and non-regulated private players, posting behind 7 proxies to provide anonymity and plausible deniability against the SEC.
From what I've heard and read Wall St was heavily involved - I'm not sure why you think this would be a compliance issue?
A bank going on reddit to try to influence public behavior and therefore the price of a stock so they can make money is definitely illegal. A competent legal department would reject an organized attempt to do this. This is why many people believe that it is "finance bros" doing this on their own in their spare time rather than somebody at JPM leading a team to do it.
All this retail interest in meme stocks is gambling, plain and simple. More people entering the market creates a Ponzi effect where new entrants pay for the gains of holders, but by definition this is unsustainable. You can see this basically everywhere in the economy but the meme stocks are the most obvious.
Not financial advice, I thought Tesla was laughably over valued at $40 a share, never bet more than you’re willing to lose.
Not financial advice, I thought Tesla was laughably over valued at $40 a share, never bet more than you’re willing to lose.
Investing in any stock is gambling, plain and simple. The only difference is your risk tolerance.
Remember when it was impossible for real estate investments to lose money 15 years ago?
Remember when it was impossible for real estate investments to lose money 15 years ago?
Gambling is when you take big risks with hope for a big payoff. It’s possible to invest in the stock market and limit risk by diversifying and hedging positions, but how many meme stock investors are doing that? It’s much more likely to see people yoloing their life savings on Tesla or GME and hoping to retire from the windfall. Not going to be pretty if stocks ever go down again.
Gambling is when the house has an edge, and you will statistically lose in the long run. Investing is when you have the edge.
Would you consider placing your life savings on 100 1:3 payout coin flips investing?
If your goal is to own a productive asset, it is investing. If your goal is to ride the price fluctuations of an asset, it is gambling.
TSLA is crashing because TSLA is not worth more than the rest of the top 10 manufacturers combined, as their market cap would suggest.
Other notable differences include actively building the largest and most advanced factories on every major continent, disrupting the entire automobile industry such that even jaguar is going full electric by 2025, mainstreaming self-driving, and cutting the costs of residential solar in half.
Meanwhile, gamestop is trying to make a profit out of a portfolio of dusty commercial real estate.
Other notable differences include actively building the largest and most advanced factories on every major continent, disrupting the entire automobile industry such that even jaguar is going full electric by 2025, mainstreaming self-driving, and cutting the costs of residential solar in half.
Meanwhile, gamestop is trying to make a profit out of a portfolio of dusty commercial real estate.
> actively building the largest and most advanced factories on every major continent
They are not the most advanced factories, not even close. Tesla uses much more human labor per vehicle than its competitors; the "alien dreadnought" never materialized. "Toyota remains well ahead of Tesla in terms of manufacturing efficiency, producing more vehicles per employee, while utilizing its fixed assets and inventory more effectively":
https://www.forbes.com/sites/greatspeculations/2020/02/11/co...
> disrupting the entire automobile industry such that even jaguar is going full electric by 2025
The industry shift towards electric vehicles is because it's finally becoming profitable to make them. This is largely due to a dramatic reduction in battery costs which is driven by R&D for smartphones, not cars. Personally I don't believe Tesla has much to do with it.
> mainstreaming self-driving
They are mainstreaming dangerous driver assistance technologies well before they are ready because they've been pre-selling "full self driving" for years. They are nowhere close to completing an autonomous cross-country drive, something they promised would be done five years ago. Waymo is far ahead of Tesla on self-driving technology.
> cutting the costs of residential solar in half
I'm not sure there's even any point in arguing this because solar is an insignificant fraction of their business. They are a car manufacturer, nothing more. But in my personal opinion, I think the SolarCity acquisition was a fraudulent bailout of Musk's family, the solar shingles were mostly a sham, and Tesla has no significant proprietary solar technology at all.
They are not the most advanced factories, not even close. Tesla uses much more human labor per vehicle than its competitors; the "alien dreadnought" never materialized. "Toyota remains well ahead of Tesla in terms of manufacturing efficiency, producing more vehicles per employee, while utilizing its fixed assets and inventory more effectively":
https://www.forbes.com/sites/greatspeculations/2020/02/11/co...
> disrupting the entire automobile industry such that even jaguar is going full electric by 2025
The industry shift towards electric vehicles is because it's finally becoming profitable to make them. This is largely due to a dramatic reduction in battery costs which is driven by R&D for smartphones, not cars. Personally I don't believe Tesla has much to do with it.
> mainstreaming self-driving
They are mainstreaming dangerous driver assistance technologies well before they are ready because they've been pre-selling "full self driving" for years. They are nowhere close to completing an autonomous cross-country drive, something they promised would be done five years ago. Waymo is far ahead of Tesla on self-driving technology.
> cutting the costs of residential solar in half
I'm not sure there's even any point in arguing this because solar is an insignificant fraction of their business. They are a car manufacturer, nothing more. But in my personal opinion, I think the SolarCity acquisition was a fraudulent bailout of Musk's family, the solar shingles were mostly a sham, and Tesla has no significant proprietary solar technology at all.
> The industry shift towards electric vehicles is because it's finally becoming profitable to make them. This is largely due to a dramatic reduction in battery costs which is driven by R&D for smartphones, not cars. Personally I don't believe Tesla has much to do with it.
As much as I agree with the rest of your comment, I have to disagree with this part. Yes, there is a shift towards profitability with electric vehicles now and that has a lot to do with battery advancements from smartphones. But EVs still aren't exactly profitable, and when they are it's usually because of tax credits (granted that still counts, but it's important to mention).
It's important to remember traditional automobile manufacturers have decades of accumulated knowledge from spending hundreds of billions, if not trillions of dollars, on R&D for the internal combustion engine. Their processes are set up for it. Their tooling is set up for it. And more importantly, their business model which almost always focuses on maintenance costs is set up for it. It's like how Kodak invented the digital camera, but decided to continue with their legacy business because they were already set up for it.
There are many things I dislike about Tesla. But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.
As much as I agree with the rest of your comment, I have to disagree with this part. Yes, there is a shift towards profitability with electric vehicles now and that has a lot to do with battery advancements from smartphones. But EVs still aren't exactly profitable, and when they are it's usually because of tax credits (granted that still counts, but it's important to mention).
It's important to remember traditional automobile manufacturers have decades of accumulated knowledge from spending hundreds of billions, if not trillions of dollars, on R&D for the internal combustion engine. Their processes are set up for it. Their tooling is set up for it. And more importantly, their business model which almost always focuses on maintenance costs is set up for it. It's like how Kodak invented the digital camera, but decided to continue with their legacy business because they were already set up for it.
There are many things I dislike about Tesla. But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.
> There are many things I dislike about Tesla. But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.
This feels vaguely ahistorical. The best-selling electric car platform in Europe today is the Renault Z-E platform (or at least it was; VW may have overtaken by now). That platform was announced in 2009 or so, with the first cars in 2011, and the first Zoe (the popular car based on the platform) in 2012. The Nissan Leaf came out in 2010. The Tesla Model S came out in 2012.
So given that, it's hard to see what Tesla had to do with it, really. Some of the most popular models came to market BEFORE Tesla (if you ignore the roadster, a contemporary of the Z-E concepts, which you almost certainly should).
This feels vaguely ahistorical. The best-selling electric car platform in Europe today is the Renault Z-E platform (or at least it was; VW may have overtaken by now). That platform was announced in 2009 or so, with the first cars in 2011, and the first Zoe (the popular car based on the platform) in 2012. The Nissan Leaf came out in 2010. The Tesla Model S came out in 2012.
So given that, it's hard to see what Tesla had to do with it, really. Some of the most popular models came to market BEFORE Tesla (if you ignore the roadster, a contemporary of the Z-E concepts, which you almost certainly should).
I'm a Tesla skeptic like parent but I believe parent is right: Tesla has advanced the EV market by maybe 3-5 years.
You are correct about timings. What you are missing is
1) Adoption and perception. The public and mainstream media love 'EV Jesus' and his perceived dedication to 'the mission'.
2) User experience, in particular charging. Tesla still today has the biggest charger network and charging is a crucial remedy for range anxiety.
You are correct about timings. What you are missing is
1) Adoption and perception. The public and mainstream media love 'EV Jesus' and his perceived dedication to 'the mission'.
2) User experience, in particular charging. Tesla still today has the biggest charger network and charging is a crucial remedy for range anxiety.
Honestly if either the brand or charging were as big a deal as all that, I'd expect them to be doing better in Europe. The US seems to be the only remaining territory where they're the market leader, and they may be a bit stickier there, but it's not clear that EU sales of, say, the Zoe or id3 would be any different in the parallel universe where Tesla never existed. Those sell because they've hit a price/range point, and that's more due to the relentless slow progress of battery technology than anything else.
Not to say they're not a significant electric car manufacturer, but "coming third in the biggest western market, behind Renault, who apparently still exist" is not a great argument for them being either a market leader or having a particularly sticky brand.
Not to say they're not a significant electric car manufacturer, but "coming third in the biggest western market, behind Renault, who apparently still exist" is not a great argument for them being either a market leader or having a particularly sticky brand.
And the nokia phones were much more popular, before apple made the iphone.
The disruptive product doesn't have to be the first.
The disruptive product doesn't have to be the first.
I don't see how that works as an analogy _at all_. The iPhone lead to a complete change in what a phone _was_, with the Nokia view of a phone (and even of a smartphone) fading out.
By contrast, a Leaf or Zoe that you buy today is just a better version of the Leaf or Zoe you could have bought before the Model S came out.
By contrast, a Leaf or Zoe that you buy today is just a better version of the Leaf or Zoe you could have bought before the Model S came out.
Their tooling is set up for it.
You know what else "their tooling is set up" for? Being changed in a short period of time for whatever the next hotness is.
But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.
How do you reconcile that statement with the fact that while folks were waiting for Tesla to fill their Model S pre-orders, we were already driving a Nissan Leaf? The Leaf was going to happen whether or not Tesla ever built a single car, or even if Tesla never existed. I mean it's nice that Tesla fans jumped on the EV bandwagon, even if a little late, but let's not pretend Tesla wasn't late to the production EV game.
You know what else "their tooling is set up" for? Being changed in a short period of time for whatever the next hotness is.
But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.
How do you reconcile that statement with the fact that while folks were waiting for Tesla to fill their Model S pre-orders, we were already driving a Nissan Leaf? The Leaf was going to happen whether or not Tesla ever built a single car, or even if Tesla never existed. I mean it's nice that Tesla fans jumped on the EV bandwagon, even if a little late, but let's not pretend Tesla wasn't late to the production EV game.
I paid $5000 for my leaf.
Teslas maintain most of their retail value.
There's a reason. If leafs were the archetypical EV, public perception of EVs would be leafs. Which are garbage.
Teslas maintain most of their retail value.
There's a reason. If leafs were the archetypical EV, public perception of EVs would be leafs. Which are garbage.
Find another factory which produces something as advanced as a car, which also produces its own battery cells, produces its own motor, and I'll consider it as advanced of a factory. Giga factory is a revolution in manufacturing that cannot be encapsulated in your efficiency metrics.
Also consider that the tesla gigafactory will build the entire frame and body of the vehicle as one part in under a second. Nothing close to this is being done, because the machines to do it are being invented for tesla.
If you'd like to discuss your other points with me, i'm down. But I don't like the "I disagree with every one of your points so here's a pdf" format
Also consider that the tesla gigafactory will build the entire frame and body of the vehicle as one part in under a second. Nothing close to this is being done, because the machines to do it are being invented for tesla.
If you'd like to discuss your other points with me, i'm down. But I don't like the "I disagree with every one of your points so here's a pdf" format
You probably shouldn't check out TSLA today then.
crypto is still bubblish.. new field, massive returns ... everybody with a bit of mileage know it will feel bad for the last week buyer before the top. musical chair.
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No, GME has a failing business. They were losing money on their physical stores before the pandemic.
They basically have to pivot into ecommerce and somehow compete effectively with Sony, Microsoft, and Valve. I don't give them good odds of success there, even with Ryan Cohen.
They basically have to pivot into ecommerce and somehow compete effectively with Sony, Microsoft, and Valve. I don't give them good odds of success there, even with Ryan Cohen.
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Hit me up when BTC goes bankrupt.
BTC’s version of bankrupt is when transaction fees aren’t worth enough to incentivize mining.
that has almost happened multiple times and those times correlate with massive tether prints
I think it’s extremely likely that Tether isn’t backed and is responsible for most of the BTC price increases. Got any links for these events?
What do you mean by "not enough to incentivize mining"? Mining works on a system where the fewer miners there are the larger a portion of the total transaction fee share each miner gets. Even if the there were no exchanges or people sending transactions, I'm sure there would be at least a few nerds who would mine on their desktop computers for shits and giggles.
A better criterion would be "when transaction fees aren't worth enough to incentivize enough mining to keep the network secure". But even that isn't a very clear concept because you can always just wait longer for more blocks to confirm.
A better criterion would be "when transaction fees aren't worth enough to incentivize enough mining to keep the network secure". But even that isn't a very clear concept because you can always just wait longer for more blocks to confirm.
Well if the hash rate drops far enough all that unused ASIC firepower could easily fork the network a million different directions and transactions would take forever to get through, I don't think waiting would produce that much more security because the real chain getting mined on the desktops would be a lot shorter than the ASIC mined ones.
There is a particular risk, unlikely but theoretically possible, that I'm thinking of here.
In case of a sudden huge decrease of BTC price for a whatever reason, the cost of electricity for mining would become much larger than the cost of all the expected reward (the newly mined part plus the txn fee part). If such a situation would cause major miners cease mining, then there's a gap where there's a lot of unprofitable [proof of] work too be done until the next hash difficulty adjustment, which happens every 2016 blocks - which usually should be roughly every two weeks, but if there's a large sudden hash rate decrease, then it can take months to mine those blocks, the adjustment won't happen until (unless!) someone sacrifices something like 100 million dollars in electricity costs to mine the remaining blocks while the difficulty rate has made it unprofitable at the unexpectedly lowered BTC price - and, of course, the impact of that hashrate drop would make BTC transactions very slow and act as a further downward push on BTC price.
TL;DR - there's a mechanism where a sudden large, rapid drop in BTC price might perhaps cause a sustained collapse of BTC price.
In case of a sudden huge decrease of BTC price for a whatever reason, the cost of electricity for mining would become much larger than the cost of all the expected reward (the newly mined part plus the txn fee part). If such a situation would cause major miners cease mining, then there's a gap where there's a lot of unprofitable [proof of] work too be done until the next hash difficulty adjustment, which happens every 2016 blocks - which usually should be roughly every two weeks, but if there's a large sudden hash rate decrease, then it can take months to mine those blocks, the adjustment won't happen until (unless!) someone sacrifices something like 100 million dollars in electricity costs to mine the remaining blocks while the difficulty rate has made it unprofitable at the unexpectedly lowered BTC price - and, of course, the impact of that hashrate drop would make BTC transactions very slow and act as a further downward push on BTC price.
TL;DR - there's a mechanism where a sudden large, rapid drop in BTC price might perhaps cause a sustained collapse of BTC price.
> There is a particular risk, unlikely but theoretically possible, that I'm thinking of here. [...] TL;DR - there's a mechanism where a sudden large, rapid drop in BTC price might perhaps cause a sustained collapse of BTC price.
This scenario is known as the "chain death spiral". When BCH forked from BTC, the BCH backers hoped to cause a death spiral on the BTC chain, so that it would die and be replaced by the BCH chain, the later having a modified algorithm which adjusted the hash difficulty faster. IIRC, they failed for two reasons: first, there was a large enough group of miners which didn't defect and stayed on the BTC chain even while the BCH chain was more profitable, keeping the hash rate high enough that the difficulty adjustment kept working; second, the faster difficulty adjustment of the BCH chain led it to oscillate between long periods without any block and periods in which many blocks were mined very quickly, most of them empty. IIRC, this ended when the BCH chain hard forked again to change its difficulty adjustment to one which didn't oscillate as much; however, the hype caused by all this mess (whoever had Bitcoin had doubled the amount of coin they had! Of course, half of it was BTC and half of it was BCH) led to an increase to the price of Bitcoin (and a few more forks).
This scenario is known as the "chain death spiral". When BCH forked from BTC, the BCH backers hoped to cause a death spiral on the BTC chain, so that it would die and be replaced by the BCH chain, the later having a modified algorithm which adjusted the hash difficulty faster. IIRC, they failed for two reasons: first, there was a large enough group of miners which didn't defect and stayed on the BTC chain even while the BCH chain was more profitable, keeping the hash rate high enough that the difficulty adjustment kept working; second, the faster difficulty adjustment of the BCH chain led it to oscillate between long periods without any block and periods in which many blocks were mined very quickly, most of them empty. IIRC, this ended when the BCH chain hard forked again to change its difficulty adjustment to one which didn't oscillate as much; however, the hype caused by all this mess (whoever had Bitcoin had doubled the amount of coin they had! Of course, half of it was BTC and half of it was BCH) led to an increase to the price of Bitcoin (and a few more forks).
BTC goes bankrupt when one person controls 51% of the mining infrastructure
That seems like a bit of a simplistic view spurred on by people who don’t know what Chapter 11 is.
It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.
It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.
"and then we'll be ok"
More like: "and then we'll pay back as much as we can to our creditors, and then if there's still money left at the end we might be ok"
More like: "and then we'll pay back as much as we can to our creditors, and then if there's still money left at the end we might be ok"
Well, in this case perhaps. The shareholders may be screwed, but at least it gives them (Hertz as well as shareholders) a fighting chance, rather than just saying “yep, we had a good run” and washing their hands of everything.
> That seems like a bit of a simplistic view spurred on by people who don’t know what Chapter 11 is.
> It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.
It really depends on which "we" you're talking about:
1. What you said is probably true, from the perspective of the organization itself (which includes its officers).
2. It's almost always false, from the perspective of the current shareholders. They're going to get wiped out.
> It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.
It really depends on which "we" you're talking about:
1. What you said is probably true, from the perspective of the organization itself (which includes its officers).
2. It's almost always false, from the perspective of the current shareholders. They're going to get wiped out.
Yes, the we were Hertz in that case, not shareholders.
If you read some of the posts on WSB a huge number of people just really have no clue about capital markets, investing, or basic business sense.
I don't know how many times I saw people claiming GME would go to $1000 because the new CEO has a brilliant new scheme to turn the company around by going digital! Why "going digital" in 2021 means your company is worth 100X what it was a few months ago I'll never quite understand. I guess no one had yet discovered the opportunity of these computer machines and the World Wide Web!
Or "it's the short squeeze" By people who didn't even know what a short was 72 hours before, long after the shorts had covered their positions.
Sure some people acknowledge they are essentially gambling in equities, but tons of people truly think they have some stunning insight into a business because of some anonymous WSB shitpost they read this morning.
I don't know how many times I saw people claiming GME would go to $1000 because the new CEO has a brilliant new scheme to turn the company around by going digital! Why "going digital" in 2021 means your company is worth 100X what it was a few months ago I'll never quite understand. I guess no one had yet discovered the opportunity of these computer machines and the World Wide Web!
Or "it's the short squeeze" By people who didn't even know what a short was 72 hours before, long after the shorts had covered their positions.
Sure some people acknowledge they are essentially gambling in equities, but tons of people truly think they have some stunning insight into a business because of some anonymous WSB shitpost they read this morning.
Would you say those same people who just learned the phrase “short” or “short squeeze” are likely the same kind of people going to the casino and thinking they can successfully count cards?
As mentioned elsewhere in here, it’s ultimately gambling. It’s putting money up, exposing it to risk that could completely wipe you out. If someone doesn’t understand that about stock investing, I think they’re very similar to someone not realizing a casino could wipe out your money. But making sure everyone fully understands this - educating people who are risking money - certainly seems like a thoughtful thing for countries to incentivize.
But unless all the financial websites have to be styled to look like a casino, or areas of a physical bank space put up neon lights and blinking signs to emulate Vegas casinos, I don’t know if we can ever drive the point home clearly enough.
As mentioned elsewhere in here, it’s ultimately gambling. It’s putting money up, exposing it to risk that could completely wipe you out. If someone doesn’t understand that about stock investing, I think they’re very similar to someone not realizing a casino could wipe out your money. But making sure everyone fully understands this - educating people who are risking money - certainly seems like a thoughtful thing for countries to incentivize.
But unless all the financial websites have to be styled to look like a casino, or areas of a physical bank space put up neon lights and blinking signs to emulate Vegas casinos, I don’t know if we can ever drive the point home clearly enough.
RobinHood is styled like a gambling app. That doesn't put people off; more the reverse.
Yeah, I agree it's totally gambling.
There's also the thing where buying equity in a company can seem very simple because you see something like Apple where they made a cool thing and obviously their stock went up. People just have no idea about how complex the markets are.
They also don't remember the very smart people who claimed the Iphone would be quickly overtaken by Android and other cheaper alternatives (Clay Christensen predicted this a guy generally very smart on tech/business)
Hindsight always makes it seem like it was easy to pick the great companies that were OBVIOUSLY going to do well.
They don't understand how incredibly sophisticated professional investors are who dedicate their lives to it, and on average even THOSE people don't 'beat the market'.
There's also the thing where buying equity in a company can seem very simple because you see something like Apple where they made a cool thing and obviously their stock went up. People just have no idea about how complex the markets are.
They also don't remember the very smart people who claimed the Iphone would be quickly overtaken by Android and other cheaper alternatives (Clay Christensen predicted this a guy generally very smart on tech/business)
Hindsight always makes it seem like it was easy to pick the great companies that were OBVIOUSLY going to do well.
They don't understand how incredibly sophisticated professional investors are who dedicate their lives to it, and on average even THOSE people don't 'beat the market'.
But people should be allowed the freedom to choose to gamble. Even if it's bad for them - as long as they own the responsibility, and not create a burden on soceity for doing so.
Bit of a tangent, but: it’s absolutely possible to learn a relatively simple card-counting system and play with positive expected value in a casino. You can easily run simulations to prove this.
I think this reinforces the GPs point. It's not all that hard to learn some basic card counting but probably 99% of people who try it casually end up playing a -EV game, due to the fact that the edge is very small and requires practicing/playing with much more discipline than most people want to bother with.
> Why "going digital" in 2021 means your company is worth 100X what it was a few months ago I'll never quite understand.
Understand it or not, it happened. Going from $3 to $300 in under a year.
Just because some people stated seemingly silly reasons for their predictions doesn't mean everyone betting on it is stupid. They may be trying to encourage others, have an intuition, hope to detect the peak and quickly sell, or even not care about money and be playing it as a game. But at the end of the day, whoever makes money is not the stupid one. Today GME is $250. Plenty of them can be getting rich now.
I have a thought that understanding how the stock market works doesn't matter much. Most of the knowledge from that is already bakes into share prices and the movements are pretty much random. So you very well could win by not knowing what a short is.
Understand it or not, it happened. Going from $3 to $300 in under a year.
Just because some people stated seemingly silly reasons for their predictions doesn't mean everyone betting on it is stupid. They may be trying to encourage others, have an intuition, hope to detect the peak and quickly sell, or even not care about money and be playing it as a game. But at the end of the day, whoever makes money is not the stupid one. Today GME is $250. Plenty of them can be getting rich now.
I have a thought that understanding how the stock market works doesn't matter much. Most of the knowledge from that is already bakes into share prices and the movements are pretty much random. So you very well could win by not knowing what a short is.
The market cap multiplied 100X, but whether the company is actually worth 100X is a different question.
So just to get this straight, you think that GME stock went from $3 to $300 because of productive business decisions alone?
That someone can get rich gambling is not some new insight!
Most of the WSB equity analyst is the equivalent of the blackjack player sure he's going to win it big because Mercury is in retrograde!
Most of the WSB equity analyst is the equivalent of the blackjack player sure he's going to win it big because Mercury is in retrograde!
> whoever makes money is not the stupid one
Errr.. this doesn't follow at all.
Plenty of people get lucky by winning the lottery. This doesn't make lotteries a smart investment in general (and yes I'm aware of some exceptions to that).
Getting in on the GME short squeeze was smart.
More than that means you are thinking there is something other than the short squeeze going on. There doesn't seem to be much evidence for that.
Errr.. this doesn't follow at all.
Plenty of people get lucky by winning the lottery. This doesn't make lotteries a smart investment in general (and yes I'm aware of some exceptions to that).
Getting in on the GME short squeeze was smart.
More than that means you are thinking there is something other than the short squeeze going on. There doesn't seem to be much evidence for that.
I'm sorry for being rude, but that's sounds like what people who lose all life saving said...
People seem to forget that VW was part of a massive short squeeze that made it the most valuable company in the world for a few days. It took about a month for everything to deflate.
Porsche tried to takeover VAG and it failed and saddled them with so much debt that VAG could swoop in later and take them over instead.
“Turning out to be” is a little disingenuous. It was never not worthless during its meme tenure.
Investors were warned this was going to be the outcome given Hertz’s financial situation.
Right, it was always known and people bought it anyway. Next there’ll be a headline that GME was only really worth $15
Didn't Hertz self say, don't buy the stocks because they are worthless and we are broke?
Yep, as they raised a round of capital. The people buying Hertz then were out of their minds.
do you know how long it took after the short squeeze before reality set in?
literally AMC said they have trouble opening their theaters ---> wsb likes the stock
literally AMC said they have trouble opening their theaters ---> wsb likes the stock
Just look at their ticker symbol: HTZGQ
Currently priced at $0.90.
Currently priced at $0.90.
I want us to get back to reality and fundamentals. These days it feels like the entire fabric of society is falling apart.
"In the short run, the market is a voting machine but in the long run, it is a weighing machine."
https://www.goodreads.com/quotes/831517-in-the-short-run-the...
https://www.goodreads.com/quotes/831517-in-the-short-run-the...
But... “the markets will remain irrational longer than you will remain solvent”
Doesn't this only apply to short selling?
How does that apply if you are just buying stock to hold long term?
Surely short selling is more relevant, but the ‘weighing’ machine is basically irrelevant compared to speculation. For instance, what companies paid the most dividends over the last 20 years? Are those the companies with the highest valuations over that time? How long of a time horizon do you need to show cash flow value from an investment versus speculative gains? I’m going to pull out my crystal ball and predict that today’s biggest companies in market cap will have below-average dividend performance for the next 20 years compared to the rest of the S&P.
It's not going to happen for a while yet. There is more money chasing fewer opportunities so we see equity asset inflation. This is exacerbated by increasing industrial centralization and the longest period of low interest rates on record, causing the average retail investors' only logical choice to be to put it in the market - be that index funds or individual "meme stocks". And if you don't? Inflation will slowly eat away at the money you've worked hard for. Classic TINA and "No Good Choices"/Catch-22.
But hey, I've 4x'd and 2x'd my GME bets on both spikes so who am I to talk, really?
But hey, I've 4x'd and 2x'd my GME bets on both spikes so who am I to talk, really?
It is kind of miserable though, either invest in a very shaky market, or watch inflation chew through your savings. It would be a fun game if working 40-50 hours a week wasn't the cost of a ticket to play.
I believe this is an argument for the coin. Pick your poison, really.
ironic writing this right before $2 trillion is about to get distributed to the people by Congress, while the Federal Reserve is still buying corporate bonds across the entire curve and mortgages using money created at the time of transaction.
It's not worth discussing BTC, TSLA, GME, or HTZ. That is missing the forest for the trees.
The degradation of even the appearance of an orderly market is the story. The money movement (volume of excess trades X magnitude of price change) seems out of reach of unleveraged retail. Faith in private and public institutions is justifiably poor, but also under organized attack.
This is going to end badly for everyone, except perhaps for China.
The degradation of even the appearance of an orderly market is the story. The money movement (volume of excess trades X magnitude of price change) seems out of reach of unleveraged retail. Faith in private and public institutions is justifiably poor, but also under organized attack.
This is going to end badly for everyone, except perhaps for China.
Please whomever has the power to downvote don't allow this to be the top comment, or China wins
>or China wins
Could you elaborate?
Could you elaborate?
I think their point is that the top commenter engaged in an informal fallacy by painting a jaded picture then saying at the end of it China somehow wins, without any amount of narrative/justification. To me it seems like you could skip all but the last two words of top commenters comment to see their message.
Book: “The Bubble that Broke the World” - Garrett 1931.
I think in regards to finance, the only thing that's under attack is the idea of "stock market as source of knowledge about value." But I'm not sure that the stock market has actually served that purpose for decades.
IMO, it's good that people are beginning to see the stock market as a casino. If people want to "invest," they'll figure out more pro-social ways to do it than the stock market, and if they want to gamble, well, there's always the stock market.
IMO, it's good that people are beginning to see the stock market as a casino. If people want to "invest," they'll figure out more pro-social ways to do it than the stock market, and if they want to gamble, well, there's always the stock market.
Ben Graham said many decades ago that over the short term the market is like a voting machine but over the long term it's a weighing machine.
There have always been periods of irrationality in the markets but there's no reason to believe that equities are fundamentally untethered from their inherent value in perpetuity.
Eventually most of the overnight WSB stock picking geniuses are all going to lose their shirts and we'll see less of this GME nonsense. They make up a tiny fraction of trading volume anyway.
It happened in '07-08, late 90s dot-com bubble and about every decade or so before that for different reasons
There have always been periods of irrationality in the markets but there's no reason to believe that equities are fundamentally untethered from their inherent value in perpetuity.
Eventually most of the overnight WSB stock picking geniuses are all going to lose their shirts and we'll see less of this GME nonsense. They make up a tiny fraction of trading volume anyway.
It happened in '07-08, late 90s dot-com bubble and about every decade or so before that for different reasons
I like that Graham quote, and you make good points. I guess when I say "investing," I mean more like - Purchasing an equity entitles you to a share of that business' income and potentially assets, but if you buy the equity on the stock market, you're not actually investing in capacity, the way you would be if you bought an IPO or even just a piece of equipment you could use to make something.
And I think people have always given the stock market more credit than it's due as being "the economy," when really the stock market is a set of signals about the economy. The economy is the people and machines and the buildings that do stuff and make things, and the economy remains regardless of what's happening in the stock market.
If a bunch of silliness happens around a certain stock, or if the stock market becomes wildly detached from reality, it doesn't have anything to do with peoples' ability to produce value.
And I think people have always given the stock market more credit than it's due as being "the economy," when really the stock market is a set of signals about the economy. The economy is the people and machines and the buildings that do stuff and make things, and the economy remains regardless of what's happening in the stock market.
If a bunch of silliness happens around a certain stock, or if the stock market becomes wildly detached from reality, it doesn't have anything to do with peoples' ability to produce value.
> you're not actually investing in capacity, the way you would be if you bought an IPO or even just a piece of equipment you could use to make something.
while you are not directly investing in capacity like you might in an IPO, purchasing stock does create the same outcome. It's just not _you_ who is doing the capacity investing directly, but someone else who does so, as a result of the chain of investments.
while you are not directly investing in capacity like you might in an IPO, purchasing stock does create the same outcome. It's just not _you_ who is doing the capacity investing directly, but someone else who does so, as a result of the chain of investments.
It doesn't necessarily though. When I buy an IPO, my dollars go straight (kind of) into a company's bank account. When I buy stock on the market, my dollars go to whoever I bought the stock from, who will probably use those dollars to buy more stock. The only time a company ever receives dollars it can use is when it sells stock to the public or gets a loan, and the vast, vast majority of transactions on the stock market do not involve dollars going to anyone who will use them to invest in capacity.
> vast majority of transactions on the stock market do not involve dollars going to anyone who will use them to invest in capacity.
If you could _only_ invest directly into capacity, the amount of dollars that people would be willing to put in would be much smaller than today's. That's because the risk profile is singular in direct capacity investment.
The reason the stock market can fund IPOs is because it allows the different stratas of risk to be separated, and taken on by different parties that want those risks. So without your dollar buying an existing stock, thus letting early investors for an IPO an exit, they would unlikely to want to invest in the IPO in the first place!
If you could _only_ invest directly into capacity, the amount of dollars that people would be willing to put in would be much smaller than today's. That's because the risk profile is singular in direct capacity investment.
The reason the stock market can fund IPOs is because it allows the different stratas of risk to be separated, and taken on by different parties that want those risks. So without your dollar buying an existing stock, thus letting early investors for an IPO an exit, they would unlikely to want to invest in the IPO in the first place!
Yeah, it's certainly true that the financialization of everything allows for a lot more of every type of investment to be made (including in productive capacity).
>but there's no reason to believe that equities are fundamentally untethered from their inherent value in perpetuity.
Yes, but human lives are finite. Of course the current market is mostly a ponzi, but what if it lasts yet another decade? That's a major fraction of anyone's lifespan.
Fundamentally the ponzi started to collapse in 2007/2008, but it was bailed out by the government. Increasingly it looks like the only way the ponzi can actually collapse is by dollar inflating, everyone getting poorer and ponzi games collapsing in real terms, but not nominal terms. Unfortunately, probably the best thing to do in the meantime is to try to win at ponzi games and try to leave others with bags.
Yes, but human lives are finite. Of course the current market is mostly a ponzi, but what if it lasts yet another decade? That's a major fraction of anyone's lifespan.
Fundamentally the ponzi started to collapse in 2007/2008, but it was bailed out by the government. Increasingly it looks like the only way the ponzi can actually collapse is by dollar inflating, everyone getting poorer and ponzi games collapsing in real terms, but not nominal terms. Unfortunately, probably the best thing to do in the meantime is to try to win at ponzi games and try to leave others with bags.
> If people want to "invest," they'll figure out more pro-social ways to do it than the stock market,
Will they? Is there any such thing as a pro-social 401K or Roth IRA? If money is going from your paycheque into your retirement fund, bypassing you entirely, it adds significant friction to moving it out into something with more direct impact.
Will they? Is there any such thing as a pro-social 401K or Roth IRA? If money is going from your paycheque into your retirement fund, bypassing you entirely, it adds significant friction to moving it out into something with more direct impact.
> If people want to "invest," they'll figure out more pro-social ways to do it than the stock market
Here are 99% of the things you can invest in as a person without a very large amount of capital:
- real estate (your own home or rental units)
- bonds (another security - same issue as equities in your analysis)
- private business
Are any of those inherently more pro-social than equities?
The stock market encompasses both WSB speculators and “buy and hold forever” investors.
Here are 99% of the things you can invest in as a person without a very large amount of capital:
- real estate (your own home or rental units)
- bonds (another security - same issue as equities in your analysis)
- private business
Are any of those inherently more pro-social than equities?
The stock market encompasses both WSB speculators and “buy and hold forever” investors.
Seriously, what are the possible outcomes (positive or negative) that we can see play out? By what mechanisms can the currently inflated markets end and how will that impact the rest of the economy?
In the last 500 years my country has gone through economic Armageddons. In fact we invented the stock market crash. Things never ended.
What’s happening is that the masses now have access to do the same absurd gambling that the “experts” have been doing for a century. The only way out is to remove the gambling functions from the market.
But then that would require that traders go get actual jobs, and produce actual value. I think these people would rather see the US burn than do that.
But then that would require that traders go get actual jobs, and produce actual value. I think these people would rather see the US burn than do that.
That's pretty cynical and optimistic at the same time.
Cynical because it doesn't acknowledge the value that a well functioning and regulated financial system can create. Efficient flow of capital only sounds bad if you haven't seen the absence of it, like projects failing for lack of funding while bad ones are burning money.
Optimistic for thinking that the masses have anything approaching the same level of access. I was hoping anyone with fintech experience could chime in disabuse others of this, but the masses don't have anything. It's depressing to watch so many people (on average) just destroying their savings while they're young and can make the biggest impact on their future savings.
Cynical because it doesn't acknowledge the value that a well functioning and regulated financial system can create. Efficient flow of capital only sounds bad if you haven't seen the absence of it, like projects failing for lack of funding while bad ones are burning money.
Optimistic for thinking that the masses have anything approaching the same level of access. I was hoping anyone with fintech experience could chime in disabuse others of this, but the masses don't have anything. It's depressing to watch so many people (on average) just destroying their savings while they're young and can make the biggest impact on their future savings.
>Cynical because it doesn't acknowledge the value that a well functioning and regulated financial system can create.
You don’t need gambling to have a well functioning financial system.
The price of goods at Walmart is not based on what uninterested bettors think the price should. It’s just based on supply and demand.
We don’t need gambling to have a functioning financial market.
You don’t need gambling to have a well functioning financial system.
The price of goods at Walmart is not based on what uninterested bettors think the price should. It’s just based on supply and demand.
We don’t need gambling to have a functioning financial market.
The reason walmart's prices are stable is _because_ of the gambling of the market!
The financial engineering of modern day has managed to separate risk (which is what causes price fluctuations) from their underlying commodity/goods/etc, and sell that risk away to people who want to take it.
This allows those who want to not have risk (and thus stable prices) to have it - albeit yes, they pay a small premium for that. But ask any farmer and they prefer a lower, but stable price for many years, rather than the fluctuating price of produce.
So the gamblers, who by definition, want risk, take on all the risk. Thus, a functioning financial market is how this is all conducted.
The financial engineering of modern day has managed to separate risk (which is what causes price fluctuations) from their underlying commodity/goods/etc, and sell that risk away to people who want to take it.
This allows those who want to not have risk (and thus stable prices) to have it - albeit yes, they pay a small premium for that. But ask any farmer and they prefer a lower, but stable price for many years, rather than the fluctuating price of produce.
So the gamblers, who by definition, want risk, take on all the risk. Thus, a functioning financial market is how this is all conducted.
Nonsense. We had stable prices before the gambling functions were possible. The gambling functions of the market add nothing of value, and produce no economic output.
it's only stable if you imagined it to be stable - it wasn't. And commodities futures and speculation is only gambling if you choose to call it gambling and compare it to casinos - it's not. Comparing it to a house-odds gambling game like casino is just personal bias on your part, and your lack of understanding of the machinations of commodities trade.
Americans always love tying things back to attacking China.
Hol' up.
While in bankruptcy, some fools ran up the price of Hertz stock. Then, while the price was up in the middle of bankruptcy proceedings, Hertz sold some new shares to the same fools. The final result of the bankruptcy wiped out all of the shareholders.
While the buyers were obviously fools, Hertz should have known that zero shareholder value was a likely outcome. How was selling more stock in that situation legal? I see that the sale was quickly shut down... but it shouldn't have happened in the first place.
While in bankruptcy, some fools ran up the price of Hertz stock. Then, while the price was up in the middle of bankruptcy proceedings, Hertz sold some new shares to the same fools. The final result of the bankruptcy wiped out all of the shareholders.
While the buyers were obviously fools, Hertz should have known that zero shareholder value was a likely outcome. How was selling more stock in that situation legal? I see that the sale was quickly shut down... but it shouldn't have happened in the first place.
Why would it be illegal?
Hertz was in bankruptcy because it couldnt pay its debts, a capital injection might have raised enough cash to pay off its debts and exit the bankruptcy proceedings.
They disclosed the low likelyhood of such a thing happening but its not the law or the SECs job to make everyone take wise financial decisions.
Hertz was in bankruptcy because it couldnt pay its debts, a capital injection might have raised enough cash to pay off its debts and exit the bankruptcy proceedings.
They disclosed the low likelyhood of such a thing happening but its not the law or the SECs job to make everyone take wise financial decisions.
> Hertz was in bankruptcy because it couldnt pay its debts, a capital injection might have raised enough cash to pay off its debts and exit the bankruptcy proceedings.
While I do agree that it shouldn't be illegal, wouldn't they know how much money they would raise, and hence be able to determine if the capital raise would provide sufficient capital?
While I do agree that it shouldn't be illegal, wouldn't they know how much money they would raise, and hence be able to determine if the capital raise would provide sufficient capital?
If they need to raise $1000, and you but $10 - no one knows if your investment is worthless until after no one buys the additional $990
As usual, Matt Levine covered this pretty well in his newsletter: https://www.bloomberg.com/news/newsletters/2020-06-12/money-...
The relevant quote:
> Really I can’t decide how to feel about this. On first principles, you should not sell a billion dollars of stock in a bankrupt company to small retail investors who just installed Robinhood on their phones a few months ago. On the other hand, people are definitely doing that anyway [emphasis original]; a notable feature of this weird pandemic market is exactly that hundreds of millions of dollars of stock in Hertz, which is bankrupt, are being sold to small retail investors every day. Hertz just wants permission to do some of that selling itself.
The relevant quote:
> Really I can’t decide how to feel about this. On first principles, you should not sell a billion dollars of stock in a bankrupt company to small retail investors who just installed Robinhood on their phones a few months ago. On the other hand, people are definitely doing that anyway [emphasis original]; a notable feature of this weird pandemic market is exactly that hundreds of millions of dollars of stock in Hertz, which is bankrupt, are being sold to small retail investors every day. Hertz just wants permission to do some of that selling itself.
I like his argument. Its pretty reasonable in its principles.
But it doesn't work in this situation. Hertz raised 10^7 dollars this way when they were 10^9 in the hole. Looks to me like the executives saw an opportunity to part some people from their money and took it.
An outside investor is sharing shares they already have, or short-selling shares with the promise to buy them back later. That's wildly different from issuing new shares when you have inside information which prices them at zero.
But it doesn't work in this situation. Hertz raised 10^7 dollars this way when they were 10^9 in the hole. Looks to me like the executives saw an opportunity to part some people from their money and took it.
An outside investor is sharing shares they already have, or short-selling shares with the promise to buy them back later. That's wildly different from issuing new shares when you have inside information which prices them at zero.
> Looks to me like the executives saw an opportunity to part some people from their money and took it.
AKA business.
> That's wildly different from issuing new shares when you have inside information which prices them at zero.
That’s wildly different from Hertz’s bankruptcy being public information.
If people want to gamble on unlikely outcomes, that’s their business.
AKA business.
> That's wildly different from issuing new shares when you have inside information which prices them at zero.
That’s wildly different from Hertz’s bankruptcy being public information.
If people want to gamble on unlikely outcomes, that’s their business.
That description also fits straight up robbery. I don't think it's a particularly meaningful statement in this situation.
Yes, that’s my point. It’s a meaningless statement in a discussion about fully informed buyers and sellers engaging in voluntary transactions.
People were buying a lottery ticket. The difference in this case is that there were no jackpot winners.
It's not uncommon for actual lotteries to have no jackpot winners in a given timeperiod. That's why the pot size keeps growing. At some point the hype from how many big the potential but unlikely payout got increases the share of people buying the ticket. The different between the Hertz stock and a lottery ticket is that eventually the Lottery will payout. But with a stock like Hertz there is no such guarantee.
To quote Mark Twain (or someone)
"The lottery is a tax on people who are bad at math"
Presumably the math there is expected value, but does that even matter?
Imagine two lotteries that each sell ten million $1 tickets, and will only sell one ticket per person.
One has a jackpot of $7 million. The other has a jackpot of $15 million.
Math would tell you there's a significant difference between the two, wouldn't it?
But I would say the right answer is that the difference in payout doesn't matter. And you probably shouldn't buy either ticket.
Am I reading it wrong, is 'math' supposed to mean something else here?
Imagine two lotteries that each sell ten million $1 tickets, and will only sell one ticket per person.
One has a jackpot of $7 million. The other has a jackpot of $15 million.
Math would tell you there's a significant difference between the two, wouldn't it?
But I would say the right answer is that the difference in payout doesn't matter. And you probably shouldn't buy either ticket.
Am I reading it wrong, is 'math' supposed to mean something else here?
You overanalysed it. The math is simply that you are statistically unlikely to get your dollar back.
Is that even math? I can accept that but it's not a very satisfying answer.
And almost anyone playing the lottery can tell you the chance of winning a jackpot is very low!
And almost anyone playing the lottery can tell you the chance of winning a jackpot is very low!
No one chooses to be robbed, people chose to buy garbage.
It's more like an NFT or an ICO.
Why not use Hertz stock as a proof of stake? It's as good as any other made up currency.
Why not use Hertz stock as a proof of stake? It's as good as any other made up currency.
Selling something that you know will end up worthless because you know suckers will buy it is wrong.
It's morally and ethically theft. Gross, filthy, self-conscious theft.
The fact that people just laugh and say, "That's business!" is an indication of how morally bankrupt the business world is.
It's morally and ethically theft. Gross, filthy, self-conscious theft.
The fact that people just laugh and say, "That's business!" is an indication of how morally bankrupt the business world is.
Almost everything ever sold ends up worthless. The colloquial term for someone who buys something is "consumer".
Lots of people sold Hertz stock knowing it was going to be worthless, why should Hertz be singled out?
Let's not talk about Bitcoin again.
> Selling something that you know will end up worthless because you know suckers will buy it is wrong.
This is a discussion about informed buyers who want to gamble on minute probabilities, not suckers.
This is a discussion about informed buyers who want to gamble on minute probabilities, not suckers.
> That's wildly different from issuing new shares when you have inside information which prices them at zero.
Hertz executives were in possession of no such information. The information was very public.
Hertz executives were in possession of no such information. The information was very public.
Zero shareholder value was the overwhelmingly likely outcome, but not completely certain. (If Hertz magically recovered from bankruptcy, however unlikely, the payoff might have been >1000%).
The prospectus clearly stated that there was negligible likelihood of return.
On the flip side, from the creditor's perspective: "We loaned you a bunch of money, you can't pay it back, and there are some people who would like to buy shares in your company today? How can you not sell it to them?"
The unsecured creditors in this situation don't appear to be investment banks, they appear to be auto repair companies, perhaps exposed to counterparty risks from transacting with Hertz[1].
Your question brings to mind part of an exchange from one of my favorite pieces of financial cinema [2]:
SAM ROGERS: And you are selling something you know has no value.
JOHN TULD: (cuts him off cold) We are selling to willing buyers at the current fair market price, so that WE may survive, Sam.
SAM ROGERS: You'll never sell a thing to any one of them again.
JOHN TULD: I understand.
SAM ROGERS: Do you?
JOHN TULD: Do you!!! This is it, Sam, this is it!
[1] https://www.repairerdrivennews.com/2020/05/25/hertz-will-con...
[2] https://www.youtube.com/watch?v=7prnY2FOxns
The prospectus clearly stated that there was negligible likelihood of return.
On the flip side, from the creditor's perspective: "We loaned you a bunch of money, you can't pay it back, and there are some people who would like to buy shares in your company today? How can you not sell it to them?"
The unsecured creditors in this situation don't appear to be investment banks, they appear to be auto repair companies, perhaps exposed to counterparty risks from transacting with Hertz[1].
Your question brings to mind part of an exchange from one of my favorite pieces of financial cinema [2]:
SAM ROGERS: And you are selling something you know has no value.
JOHN TULD: (cuts him off cold) We are selling to willing buyers at the current fair market price, so that WE may survive, Sam.
SAM ROGERS: You'll never sell a thing to any one of them again.
JOHN TULD: I understand.
SAM ROGERS: Do you?
JOHN TULD: Do you!!! This is it, Sam, this is it!
[1] https://www.repairerdrivennews.com/2020/05/25/hertz-will-con...
[2] https://www.youtube.com/watch?v=7prnY2FOxns
Even that exchange is not analogous, since Hertz told everyone what they were selling is worthless.
No. No! I reject this rationale. Just because its in the domain of finance and business doesn't make it ethical. For example, you can't just disclose your way into arbitrary medical experiments on people. Regardless of how you rationalize the principles, it will end up exploiting the most vulnerable citizens.
While I readily admit that the law does not forbid all forms of unethical behavior, I do believe that it should forbid blatantly exploitative acts. Like this one.
While I readily admit that the law does not forbid all forms of unethical behavior, I do believe that it should forbid blatantly exploitative acts. Like this one.
I understand the sentiment and might have had difficulty approving the sale if I were on the Hertz board of directors, however, there is a chance, however slim, that the dumb money knows something the smart money doesn't.
This is much more-readily seen post-GameStop. The AMC theater chain, mid-hoopla, managed to discharge much of its debt. The gamblers at home literally saved a major US business from dire financial straits. Some of them got paid for it, too. The company is in an undeniably better position today, as are any of the retail investors who bought and held. (The share price is up 10% today, too. The world is a complicated place.)
On the scale of exploitative acts, enabling informed gamblers to play chicken with the Bankruptcy Bus, while it may be exploitative at some level, may not be as egregious as other exploitation (Casinos? State lotteries?) that we tolerate every day.
This is much more-readily seen post-GameStop. The AMC theater chain, mid-hoopla, managed to discharge much of its debt. The gamblers at home literally saved a major US business from dire financial straits. Some of them got paid for it, too. The company is in an undeniably better position today, as are any of the retail investors who bought and held. (The share price is up 10% today, too. The world is a complicated place.)
On the scale of exploitative acts, enabling informed gamblers to play chicken with the Bankruptcy Bus, while it may be exploitative at some level, may not be as egregious as other exploitation (Casinos? State lotteries?) that we tolerate every day.
Then it should also ban gambling.
We largely did in the US. There are exceptions, but generally it’s illegal to bet on the winner of a collage football game etc. https://www.espn.com/chalk/story/_/id/19740480/the-united-st...
However, that’s slowly been changing over time.
However, that’s slowly been changing over time.
> We largely did in the US.
https://www.cnbc.com/2019/12/12/americans-spend-over-1000-do...
https://www.cnbc.com/2019/12/12/americans-spend-over-1000-do...
Yea, there is a reason gambling was originally banned and we get to learn that lesson all over again.
Is that the case here though?
I like your "disclose your way to arbitrary medical experiments" analogy. Things can't be just black and white. That said... who is buying Hertz stock during bankruptcy proceedings?
I don't see why this exploits vulnerable people in particular. As the op says, it's a real gamblers' trade.
Anyway, I think it's an insider-ish trading question. Selling stock once you already know the price to be zero is a step too far.
I like your "disclose your way to arbitrary medical experiments" analogy. Things can't be just black and white. That said... who is buying Hertz stock during bankruptcy proceedings?
I don't see why this exploits vulnerable people in particular. As the op says, it's a real gamblers' trade.
Anyway, I think it's an insider-ish trading question. Selling stock once you already know the price to be zero is a step too far.
Listen, if you guys want to strict-law yourself so people can't talk to other people, I think that's fine. There should be rules that say people who have strict-lawed themselves should be protected from loose-laws and out-laws. And strict-laws can then interact with strict-laws.
In fact, I'm even okay with defaulting to strict-laws and then one takes a test to allow being a loose-law who can interact with other loose-laws.
Then, yes, strict-laws can live a nice safe life better than ever before and spend their time arguing on the Internet about how r > g etc. etc.
But the problem is that strict-laws won't allow loose-laws so until you put that distinction in place, you should know that it is true political war and no loose-law will give any quarter because while we want to let you to be able to occupy your space, you don't want to permit us to occupy ours.
In fact, I'm even okay with defaulting to strict-laws and then one takes a test to allow being a loose-law who can interact with other loose-laws.
Then, yes, strict-laws can live a nice safe life better than ever before and spend their time arguing on the Internet about how r > g etc. etc.
But the problem is that strict-laws won't allow loose-laws so until you put that distinction in place, you should know that it is true political war and no loose-law will give any quarter because while we want to let you to be able to occupy your space, you don't want to permit us to occupy ours.
"accredited investor" law is the "loose-law" you are talking about.
I'm an accredited investor and honestly, I'd be way wealthier today if I had just done the right thing and lied about being one a little earlier.
I wish the requirements were intelligence/knowledge-based rather than resource-based but I suppose the real test of intelligence was knowing that you can lie about being an accredited investor and no one can tell so I actually failed it.
I wish the requirements were intelligence/knowledge-based rather than resource-based but I suppose the real test of intelligence was knowing that you can lie about being an accredited investor and no one can tell so I actually failed it.
I'm curious, what was your best investment as an accredited investor? (No need for a specific company, general info is fine.)
Nothing is liquid yet. Also, practically every Bay Area engineer is an accredited investor because they hit the income requirements. Many are more actively involved than I am.
> the real test of intelligence was knowing that you can lie about being an accredited investor
If the USA is anything like Australia, this is still illegal. So maybe not so much about "intelligence" as it is "willingness to break the law when it's unlikely you'll be found out".
I suspect the latter strongly correlates with financial success more broadly, too.
If the USA is anything like Australia, this is still illegal. So maybe not so much about "intelligence" as it is "willingness to break the law when it's unlikely you'll be found out".
I suspect the latter strongly correlates with financial success more broadly, too.
Nah, no one punishes you over this because it's to protect you. The most high profile case is Chris Sacca. But he's way smarter than me so I'm willing to accept that he'll win games I can't play.
Serious question: what can you do as an accredited investor that you can’t do otherwise? Why would you be way wealthier? PreIPO companies, sure, but where do you even trade that stuff?
They said take a test. "Have a million dollars" is a grossly unfair replacement for that.
>For example, you can't just disclose your way into arbitrary medical experiments on people.
Why not? If the person checks the "medical experiments" box in return for $100k, are we saying they shouldn't get the money? People willingly trade increased risk of death for increased pay all the time. Should it be illegal to be a lumberjack, or to work the overnight shift at a 7/11?
Why not? If the person checks the "medical experiments" box in return for $100k, are we saying they shouldn't get the money? People willingly trade increased risk of death for increased pay all the time. Should it be illegal to be a lumberjack, or to work the overnight shift at a 7/11?
But then we forbit selling yourself into slavery - regardless of the payment you receive. So there _must_ be a line somewhere.
It was an at-the-market offering, and Hertz didn't know anything about its market value that wasn't already a matter of public record. Hertz stock was already being traded. I guess I don't understand the ethical system that says "everybody that holds Hertz stock should be able to benefit from an irrational enthusiasm for Hertz stock except for the issuer."
Margin Call was exactly what I was thinking as I read this. Underappreciated movie - definitely worth a watch for a more realistic take on 2008nthan The Big Short.
This is kind of the core principle of capitalism, informed consent. Also the primary objective of the SEC.
Hertz has issued a regulatory filing that basically says "lol this is worthless, but we can sell you some shares" and then sold some shares. Look up the filing, it's kind of hilarious. I've posted it on HN and it got popular, titled it jokingly as "Hertz Initial Bankruptcy Offering", the moderation has changed the title to the official name of the document.
Hertz has issued a regulatory filing that basically says "lol this is worthless, but we can sell you some shares" and then sold some shares. Look up the filing, it's kind of hilarious. I've posted it on HN and it got popular, titled it jokingly as "Hertz Initial Bankruptcy Offering", the moderation has changed the title to the official name of the document.
> Hertz should have known that zero shareholder value was a likely outcome. How was selling more stock in that situation legal?
This disclosure helps:
https://www.sec.gov/Archives/edgar/data/1657853/000110465920...
Since it went before the bankruptcy judge, they might have been obligated to bondholders to sell more shares.
This disclosure helps:
https://www.sec.gov/Archives/edgar/data/1657853/000110465920...
Since it went before the bankruptcy judge, they might have been obligated to bondholders to sell more shares.
I think that sale never went through. https://www.marketwatch.com/story/hertz-ends-plan-to-sell-st...
Hertz in official filings: "Hey guys, this stock is most likely totally worthless"
Meme stonk buyers: buys stock
Hertz: "Hey guys, here's some new stock. Remember we disclosed that it's likely totally worthless"
Meme stonk buyers: continues buying worthless stock
Meme stonk buyers: "How could you do this to us?"
Meme stonk buyers: buys stock
Hertz: "Hey guys, here's some new stock. Remember we disclosed that it's likely totally worthless"
Meme stonk buyers: continues buying worthless stock
Meme stonk buyers: "How could you do this to us?"
> Meme stonk buyers: "How could you do this to us?"
Did this step actually happen? From what I understand, it was the SEC, not meme stock buyers, who disagreed with the sale.
Did this step actually happen? From what I understand, it was the SEC, not meme stock buyers, who disagreed with the sale.
Actual last few lines are actually look like the following.
Meme stonk buyers: Guys, look at this loss porn. I lost $2.5 mil on Hertz LMAO my trust fund is gone.
Other meme stonk buyers: HAHAHA you fucking retard
Third party worrywarts: How could we let this happen?
Meme stonk buyers: Guys, look at this loss porn. I lost $2.5 mil on Hertz LMAO my trust fund is gone.
Other meme stonk buyers: HAHAHA you fucking retard
Third party worrywarts: How could we let this happen?
It was worth it for the internet points
Under this argument, why should it be legal for anyone to sell Hertz stock? Should trade be halted?
Or if other people can sell the stock, why not Hertz?
Or if other people can sell the stock, why not Hertz?
> How was selling more stock in that situation legal?
They asked the bankruptcy court, and the bankruptcy court's job is to maximize value for the bondholders. Turns out that selling worthless stock (for money) is really good for the bankruptcy proceedings (getting maybe 70% of the money back instead of 60%).
Then the SEC came in (whose job is to protect retail investors), and the SEC told them to knock-it-off.
Different jobs for different courts and bureaucracies. Ultimately, the SEC determined it was illegal for them to proceed. But I guess the SEC assumed the bankruptcy courts would do the right thing. When that clearly wasn't the case, the SEC stepped in (a bit late: after $29 million was raised. But better late than never)
They asked the bankruptcy court, and the bankruptcy court's job is to maximize value for the bondholders. Turns out that selling worthless stock (for money) is really good for the bankruptcy proceedings (getting maybe 70% of the money back instead of 60%).
Then the SEC came in (whose job is to protect retail investors), and the SEC told them to knock-it-off.
Different jobs for different courts and bureaucracies. Ultimately, the SEC determined it was illegal for them to proceed. But I guess the SEC assumed the bankruptcy courts would do the right thing. When that clearly wasn't the case, the SEC stepped in (a bit late: after $29 million was raised. But better late than never)
That's very well explained.
I think that trips people up, in stories like this, is that the SEC has a pause button but not a reverse button. What's done is done, for the most part.
I think that trips people up, in stories like this, is that the SEC has a pause button but not a reverse button. What's done is done, for the most part.
What I don't understand is that Hertz specifically wanted to sell an amount of shares that wouldn't raise enough money to pay off their debts. Their prospectus noted that shares sold would automatically become worthless unless their debt was paid off, which they didn't anticipate.
But why not try? What if they sold so much stock that the bondholders could just be paid back? Why do the stock sale specifically planning for failure? Why include a limit that guarantees failure even if you would have otherwise succeeded?
But why not try? What if they sold so much stock that the bondholders could just be paid back? Why do the stock sale specifically planning for failure? Why include a limit that guarantees failure even if you would have otherwise succeeded?
Many would suggest that such an action you propose is fundamentally immoral.
Lets say a hypothetical company is overall $-4 Billion in debt (total assets - liabilities). You successfully raise $5 Billion from some means.
Now you're in a position where you sold $5 Billion worth of shares on a company that (by all fair evaluations) is only worth $1 Billion after the capital raise.
Lets say a hypothetical company is overall $-4 Billion in debt (total assets - liabilities). You successfully raise $5 Billion from some means.
Now you're in a position where you sold $5 Billion worth of shares on a company that (by all fair evaluations) is only worth $1 Billion after the capital raise.
The people buying the shares are making the "true" valuation of the company, being the ones buying it.
Do you think the buyers of HTZGQ at $5.50 in June 2020 will be proven correct?
Or do you think, that like most other bankrupt companies, HTZGQ will be worthless once these bankruptcy proceedings are done?
The stock is almost certainly going to go to $0. That's just what happens as bankruptcies play out. If you disagree, you're welcome to toss your money into buying some HTZGQ yourself.
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The issue is that Hertz CEOs / board / CFO have extra information and better ideas into how those bankruptcy proceedings are happening. For them to issue shares in this time is grossly immoral. Especially when they're publicly pointing out that yes, bankruptcy proceedings are carrying on as expected: shareholders are expected to be wiped out and assigned a big fat $0.
Or do you think, that like most other bankrupt companies, HTZGQ will be worthless once these bankruptcy proceedings are done?
The stock is almost certainly going to go to $0. That's just what happens as bankruptcies play out. If you disagree, you're welcome to toss your money into buying some HTZGQ yourself.
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The issue is that Hertz CEOs / board / CFO have extra information and better ideas into how those bankruptcy proceedings are happening. For them to issue shares in this time is grossly immoral. Especially when they're publicly pointing out that yes, bankruptcy proceedings are carrying on as expected: shareholders are expected to be wiped out and assigned a big fat $0.
It already has gone to zero. The bankruptcy proceedings wrote off all of the old stock and issued an entirely new set of shares, mostly to the debt holders.
(I cannot reply to your response when you edit so often... looks like it resets an anti-spam timer or something)
The proceedings behind a deal at this scale are so private that it is rare to see major salient revisions after a public announcement like this. Nevertheless, I concede the point that it isn't completely final. Presumably they'll be de-listed once that actually happens.
(I cannot reply to your response when you edit so often... looks like it resets an anti-spam timer or something)
The proceedings behind a deal at this scale are so private that it is rare to see major salient revisions after a public announcement like this. Nevertheless, I concede the point that it isn't completely final. Presumably they'll be de-listed once that actually happens.
Bankruptcy proceedings are still taking place and are not finalized. HTZGQ will probably go to zero soon, as what you say is almost certainly going to happen.
https://www.prnewswire.com/news-releases/hertz-global-holdin...
As of a few days ago, the PLAN (not yet executed) is to give Knighthead new shares and wipe out the current set of shareholders.
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There is a rival plan to keep HTZGQ shareholders alive. These sorts of plans go back and forth, discussed by the board, the bankruptcy court, and so forth to determine the best course of action.
No plan is ever 100% certain... not until the plan is executed. Still: the current plan is that Knighthead will be the new owners, old shareholders will be wiped out, and old bondholders will get 70%.
If bondholders are only able to get 70% under the current plan, it seems unlikely that any alternatively proposed plan would bring that to 100% somehow (the precondition before old shareholders of HTZGQ to get value out of this...). The plans will change, but the amount of assets that Hertz owns will not change. So I'm not entirely sure where another 500-million buckaroos will come from to make the bondholders whole.
https://www.prnewswire.com/news-releases/hertz-global-holdin...
As of a few days ago, the PLAN (not yet executed) is to give Knighthead new shares and wipe out the current set of shareholders.
---------
There is a rival plan to keep HTZGQ shareholders alive. These sorts of plans go back and forth, discussed by the board, the bankruptcy court, and so forth to determine the best course of action.
No plan is ever 100% certain... not until the plan is executed. Still: the current plan is that Knighthead will be the new owners, old shareholders will be wiped out, and old bondholders will get 70%.
If bondholders are only able to get 70% under the current plan, it seems unlikely that any alternatively proposed plan would bring that to 100% somehow (the precondition before old shareholders of HTZGQ to get value out of this...). The plans will change, but the amount of assets that Hertz owns will not change. So I'm not entirely sure where another 500-million buckaroos will come from to make the bondholders whole.
Modern finance is a process of constantly repackaging and reselling risk from people in a better position to evaluate that risk to people in a worse position to evaluate that risk. Finally, after a dozen generations when it arrives at the people least able to evaluate the risk, it crashes to zero, followed by sympathy to the poor suckers (like your local school district) and a bailout.
Hertz just cut out the middle men here and sold directly to suckers, maybe a lot of their executives were also creditors.
Can I interest you in an Iraqi Dinar?
Hertz just cut out the middle men here and sold directly to suckers, maybe a lot of their executives were also creditors.
Can I interest you in an Iraqi Dinar?
I'll pass on the dinars, unless they are somehow collectible.
May I interest you in some Aaa-rated subprime mortgage backed securities? How about some negative -yield bonds?
Institutions can have conflicts of interest, which individual investors can make up their own mind on. (Whether that's a winning strategy is another question, I admit)
May I interest you in some Aaa-rated subprime mortgage backed securities? How about some negative -yield bonds?
Institutions can have conflicts of interest, which individual investors can make up their own mind on. (Whether that's a winning strategy is another question, I admit)
Why especially? Pointing out that the long term value of the stock is $0 while selling it is what makes it moral IMO.
If I sell my broken car while clearly noting that it’s broken, hat makes it ok, not worse than if I’d left it out.
Do you hold this view for sellers of hertz stock that aren’t hertz? What about sellers of stock that bought the stock post bankruptcy?
If I sell my broken car while clearly noting that it’s broken, hat makes it ok, not worse than if I’d left it out.
Do you hold this view for sellers of hertz stock that aren’t hertz? What about sellers of stock that bought the stock post bankruptcy?
Yeah, a lot of companies that enter bankruptcy end up with wiped shareholders and new owners in the shape of it's creditors. It's not really news.
Then if some idiots think it's not the case, and there is value, let them bet if they so want, they obviously know better than Hertz. Hertz only decided to issue shares when their share price went over the roof, driven by those same speculators.
As long as things are correctly disclosed ("our stock is worthless, but buy it if you want"), caveat emptor.
Then if some idiots think it's not the case, and there is value, let them bet if they so want, they obviously know better than Hertz. Hertz only decided to issue shares when their share price went over the roof, driven by those same speculators.
As long as things are correctly disclosed ("our stock is worthless, but buy it if you want"), caveat emptor.
People buying shares were acting on what they believed to be the true valuation. A big difference. Imagine two people are "long" on some stock. Person A decides to sell; They believe the true valuation is lower. Person B decided to buy more; They believe the true valuation is higher. One of them is wrong.
In this case, the buyers of Hertz stock were most likely wrong, although things are not yet finalized and another comment here notes that alternate plans are being proposed that would not wipe out share holders.
In this case, the buyers of Hertz stock were most likely wrong, although things are not yet finalized and another comment here notes that alternate plans are being proposed that would not wipe out share holders.
> Now you're in a position where you sold $5 Billion worth of shares on a company that (by all fair evaluations) is only worth $1 Billion after the capital raise.
That's entirely reasonable if you think that by keeping the company alive you can build it back up until the point that it's worth more than $5B. This is indeed what every CEO thinks -- that they can make the company worth more next year than it's worth this year.
That's entirely reasonable if you think that by keeping the company alive you can build it back up until the point that it's worth more than $5B. This is indeed what every CEO thinks -- that they can make the company worth more next year than it's worth this year.
Hertz is going through Chapter 11 bankruptcy. It is reorganization, not liquidation. At the end of it, there would still be a Hertz company, but with new owners.
Hertz agreed to bankruptcy, so that they don't have to pay all of their debts anymore.
That's... literally what's going on. As part of the bankruptcy proceedings, shareholders usually get wiped out. They wouldn't have pushed this button unless they believed that their bonds were hopelessly unpayable.
That's... literally what's going on. As part of the bankruptcy proceedings, shareholders usually get wiped out. They wouldn't have pushed this button unless they believed that their bonds were hopelessly unpayable.
Filing bankruptcy is not an automatic thing. Should the company, during the course of the bankruptcy, somehow manage to bounce back and obtain enough capital to remain solvent, the court may dismiss the bankruptcy since the company no longer needs legal protection to restructure its debt or gracefully liquidate its holdings.
In addition to the court finding that a bankruptcy is no longer appropriate, either the debtor or the creditor can petition the court to dismiss a bankruptcy. This is not entirely uncommon, even when a company might have more liabilities than assets, when creditors believe their interests are harmed more by bankruptcy than a less drastic measure. This avoids companies declaring bankruptcy out of convenience rather than necessity. Shareholders are themselves creditors, and so they too could petition the court to dismiss a bankruptcy under such circumstances.
Finally, while companies (mostly) won't enter bankruptcy if they see other options, bankruptcies do not automatically wipe out shareholders, though that is probably the more common outcome. It is possible however to retain your shares, which would usually be exchanged (possibly at a discount) for shares in the newly constituted company post-bankruptcy.
In addition to the court finding that a bankruptcy is no longer appropriate, either the debtor or the creditor can petition the court to dismiss a bankruptcy. This is not entirely uncommon, even when a company might have more liabilities than assets, when creditors believe their interests are harmed more by bankruptcy than a less drastic measure. This avoids companies declaring bankruptcy out of convenience rather than necessity. Shareholders are themselves creditors, and so they too could petition the court to dismiss a bankruptcy under such circumstances.
Finally, while companies (mostly) won't enter bankruptcy if they see other options, bankruptcies do not automatically wipe out shareholders, though that is probably the more common outcome. It is possible however to retain your shares, which would usually be exchanged (possibly at a discount) for shares in the newly constituted company post-bankruptcy.
Or... Hertz can organize Chapter 11 bankruptcy, wipe out large portions of its debt, and then bounce back.
Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.
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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.
That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.
But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.
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If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.
Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.
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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.
That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.
But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.
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If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.
Yep, and this is in fact the type of bankruptcy Hertz is pursuing. Re-org, not a chapter 7 liquidation.
But to clarify, not all investors get screwed. (or at least not completely). Stock owners, unless they're of a class with a higher claim than normal common stock, will usually (though not always) lose everything. However, many bondholders will receive some of their money. How much is determined by many factors, including the type of bond and how senior the debt associated with it.
But to clarify, not all investors get screwed. (or at least not completely). Stock owners, unless they're of a class with a higher claim than normal common stock, will usually (though not always) lose everything. However, many bondholders will receive some of their money. How much is determined by many factors, including the type of bond and how senior the debt associated with it.
Plenty of companies are valued at more than 5x their assets. Tesla for example is valued at more than 10x their assets. Besides, immorality doesn't really enter into it. The SEC requires public filings to ensure investors can make informed decisions. The rest is up to the investor who presumably would be betting that the company's prospects will increase, at least partly as a result of avoiding bankruptcy an having enough cash on hand to buy some breathing room and recover. Of course, they may be wrong. But immorality only enters into it if there is deliberate deception.
Further, in the case of a company doing what you describe, they would in fact be ensuring their current shareholders, pre-$5b stock sale, don't lose all of their money.
Further, in the case of a company doing what you describe, they would in fact be ensuring their current shareholders, pre-$5b stock sale, don't lose all of their money.
The difference here is that the company was already in the middle of chapter 11. So there is no "avoiding bankruptcy", that part has already happened.
One common scenario for exiting chapter 11 is that you wipe out equity holders so that you can pay off your debts. (That's a major reason why stocks tend to get lower returns than bonds: less risk, less reward.) So, selling common stock like this in order to raise money is effectively robbing - or, more accurately, swindling - the poor to give to the rich, who tend to be the carriers of more senior debt. Which Hertz knew they were doing. Technically, they wrote, "We're selling you lots of $0 for the low low price of $2.50," in the prospectus, but they did that in the full knowledge that Robinhood users don't actually read prospectuses, and that Robinhood users were the only ones who would be buying these shares. So there's your deliberate deception.
The spot where they "buy some breathing room and recover" is the bit where you wipe out your equity holders in order to pay off your lenders as well as you can, restructure whatever remaining debt you have, and carry on. That's more-or-less what chapter 11 (as opposed to, say, chapter 7) is.
One common scenario for exiting chapter 11 is that you wipe out equity holders so that you can pay off your debts. (That's a major reason why stocks tend to get lower returns than bonds: less risk, less reward.) So, selling common stock like this in order to raise money is effectively robbing - or, more accurately, swindling - the poor to give to the rich, who tend to be the carriers of more senior debt. Which Hertz knew they were doing. Technically, they wrote, "We're selling you lots of $0 for the low low price of $2.50," in the prospectus, but they did that in the full knowledge that Robinhood users don't actually read prospectuses, and that Robinhood users were the only ones who would be buying these shares. So there's your deliberate deception.
The spot where they "buy some breathing room and recover" is the bit where you wipe out your equity holders in order to pay off your lenders as well as you can, restructure whatever remaining debt you have, and carry on. That's more-or-less what chapter 11 (as opposed to, say, chapter 7) is.
I was responding to a comment about a hypothetical, not this particular case. The hypothetical was a company with $4b in debt selling $5b in stock to remain operating. This is not only fine, it is common, especially for private companies where investors are betting on the future success of a company.
Even in bankruptcy, it is not uncommon for investors or banks to give the company bridge loans which the lenders knows full well might be lost if the restructuring doesn't work.
As for this case, it is not robbing shareholders. Chapter 11 is in not an automatic wipe out for shareholders, in fact you'll see other comments here about proposals for alternate plans for Hertz that would not wipe out shareholders. This is, if not common, certainly not unheard of: Restructuring a public corp and keeping it public post chapter 11 means it will still have stock on the market, and in some cases prior shareholders are able to exchanged their old shares for new ones.
It is also not robbing because even retail investors know full well what "bankruptcy" means and no reasonable person would buy this stock without realizing the significant risk for total loss. And in any case, how would Hertz selling stock, knowing the likely risk for a complete loss, be any different than some other institutional investor selling their stock, also knowing the buyer has an excellent chance for a complete loss?
Even in bankruptcy, it is not uncommon for investors or banks to give the company bridge loans which the lenders knows full well might be lost if the restructuring doesn't work.
As for this case, it is not robbing shareholders. Chapter 11 is in not an automatic wipe out for shareholders, in fact you'll see other comments here about proposals for alternate plans for Hertz that would not wipe out shareholders. This is, if not common, certainly not unheard of: Restructuring a public corp and keeping it public post chapter 11 means it will still have stock on the market, and in some cases prior shareholders are able to exchanged their old shares for new ones.
It is also not robbing because even retail investors know full well what "bankruptcy" means and no reasonable person would buy this stock without realizing the significant risk for total loss. And in any case, how would Hertz selling stock, knowing the likely risk for a complete loss, be any different than some other institutional investor selling their stock, also knowing the buyer has an excellent chance for a complete loss?
Airlines are in bankruptcy a few times a decade, give or take. Doesn't stop them haha.
A more logical option is to wait for Hertz to inevitably go bankrupt, and THEN invest $5 billion into them.
Under no circumstances is it better for the new investors to pay billions before the bankruptcy.
Under no circumstances is it better for the new investors to pay billions before the bankruptcy.
If you mean waiting until the bankruptcy proceedings are over, then waiting isn't always necessary. Lots of investors make high risk investments to companies in bankruptcy with bridge funds to carry them through the process.
The "under no circumstances" clause is not necessarily the case. If it's a large enough company and investors can get their investments to be senior debt, then it can be a reasonable, if still high risk investment. If the bankruptcy occurs, they'll be first in line to get paid out of the remaining assets, even if they don't get everything back. If it doesn't occur, they've got a nice high yield bond. Basically there are ways for investors to make money investing in a company at any point, if done the right way. And probably equally many, or more, ways to lose money.
In the case of Hertz? Yeah, buying their stock when it went meme doesn't look like a very smart move right now. Of course the bankruptcy plan might be amended to slow redemption of old stock into new stock post-bankruptcy, but I'd say that's success by pure luck rather than anything else.
The "under no circumstances" clause is not necessarily the case. If it's a large enough company and investors can get their investments to be senior debt, then it can be a reasonable, if still high risk investment. If the bankruptcy occurs, they'll be first in line to get paid out of the remaining assets, even if they don't get everything back. If it doesn't occur, they've got a nice high yield bond. Basically there are ways for investors to make money investing in a company at any point, if done the right way. And probably equally many, or more, ways to lose money.
In the case of Hertz? Yeah, buying their stock when it went meme doesn't look like a very smart move right now. Of course the bankruptcy plan might be amended to slow redemption of old stock into new stock post-bankruptcy, but I'd say that's success by pure luck rather than anything else.
>slow redemption = "allow redemption"
No, the enterprise value of the company doesn't change. It was owned by 4b of debt before and is now owned by 5b of equity, and has 1b in cash. It also has an intact business.
Under your logic no company would ever raise equity to pay off debt.
Under your logic no company would ever raise equity to pay off debt.
I'm going to start by saying that I pretty much agree with you that it's immoral to knowingly screw people over.
Now with that out of the way, I think there's more of a gray area here than you might think. While there are many situations where people enter into a transaction with the belief that it's a win-win for everybody involved, I think there are legitimate situations where you can trade with people ethically while also believing that the other person is making a huge mistake.
Bitcoin is a pretty great example of this. Suppose I'd been gifted a bitcoin in December of 2017. That was right around the peak of a huge rally for Bitcoin. If I'd sold it to someone for $15k I would have thought that the person buying it from me was an idiot. They may have thought the same of me. As long as we were honest with one another, that seems okay to me.
The situation with Hertz was just kind of weird. It's as though I was taking out the trash one day and someone walked up to me and offered me $1000 for my trash. I don't really have any strong moral intuitions about whether taking their money is okay because it's such a goofy and unexpected thing to do.
Now with that out of the way, I think there's more of a gray area here than you might think. While there are many situations where people enter into a transaction with the belief that it's a win-win for everybody involved, I think there are legitimate situations where you can trade with people ethically while also believing that the other person is making a huge mistake.
Bitcoin is a pretty great example of this. Suppose I'd been gifted a bitcoin in December of 2017. That was right around the peak of a huge rally for Bitcoin. If I'd sold it to someone for $15k I would have thought that the person buying it from me was an idiot. They may have thought the same of me. As long as we were honest with one another, that seems okay to me.
The situation with Hertz was just kind of weird. It's as though I was taking out the trash one day and someone walked up to me and offered me $1000 for my trash. I don't really have any strong moral intuitions about whether taking their money is okay because it's such a goofy and unexpected thing to do.
I'm also reminded of the time Stuart Butterfield explained why he felt compelled to sell shares of Slack at the generous valuations and terms people were offering to him.
> It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.
> And as a board member and a C.E.O., I have a responsibility to our employees, to our customers. And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms.
> It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.
> And as a board member and a C.E.O., I have a responsibility to our employees, to our customers. And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms.
> They asked the bankruptcy court, and the bankruptcy court's job is to maximize value for the bondholders.
Perhaps the court can do this without violating the law? This is fraud.
Perhaps the court can do this without violating the law? This is fraud.
That's not the bankruptcy court's job. That's the SEC's job.
Ever heard of the phrase "you cannot have two masters" ?? By splitting the job into two organizations, we ensure that both jobs are accomplished. Otherwise, only one job gets done (at the expense of the other).
Ever heard of the phrase "you cannot have two masters" ?? By splitting the job into two organizations, we ensure that both jobs are accomplished. Otherwise, only one job gets done (at the expense of the other).
I mean, they were in bankruptcy court. Those arent secret proceedings.
If someone still wants to buy their stock while they are in court loudly proclaiming their stock is worthless why would you make that illegal?
If someone still wants to buy their stock while they are in court loudly proclaiming their stock is worthless why would you make that illegal?
> How was selling more stock in that situation legal?
Why should it not be?
Consider the following situation:
1. Alice owns 5 shares of Hertz.
2. Hertz owns 5 shares of Hertz.
3. Bob is an ape. For some stupid reason, Bob wants to buy 5 shares of Hertz.
Is it immoral or illegal for Alice to sell her 5 shares to Bob?
If not, why should it be immoral or illegal for Hertz to do so? Especially if they are up front about their incredibly bleak financial prospective.
Is the sale defrauding someone? Who is it defrauding? Bob? Bob wants to buy the stock anyways, because it's a meme stock - why does he care if it's Alice, or Hertz selling him that stock?
If allowing Bob to buy stock is such a bad thing that we need to protect Bob from it, then the correct thing to do is for the stock to be delisted.
Why should it not be?
Consider the following situation:
1. Alice owns 5 shares of Hertz.
2. Hertz owns 5 shares of Hertz.
3. Bob is an ape. For some stupid reason, Bob wants to buy 5 shares of Hertz.
Is it immoral or illegal for Alice to sell her 5 shares to Bob?
If not, why should it be immoral or illegal for Hertz to do so? Especially if they are up front about their incredibly bleak financial prospective.
Is the sale defrauding someone? Who is it defrauding? Bob? Bob wants to buy the stock anyways, because it's a meme stock - why does he care if it's Alice, or Hertz selling him that stock?
If allowing Bob to buy stock is such a bad thing that we need to protect Bob from it, then the correct thing to do is for the stock to be delisted.
and: if it is fine for Alice to sell those shares, what if Hertz is willing to sell them for less than Alice? Should Bob have to pay Alice's higher price for a worthless thing, to avoid some immorality happening?
You could use the same argument for snake oil, which I think is pretty universally not accepted as moral.
Nope.
With snake oil, we would way that it is immoral for ANYONE to sell it. As a result, we (mostly) make it illegal too.
With Hertz stock, nobody seems willing to say that all sales of such stock are immoral. And certainly they're not illegal; people have been buying and selling an enormous volume of Hertz stock.
With snake oil, we would way that it is immoral for ANYONE to sell it. As a result, we (mostly) make it illegal too.
With Hertz stock, nobody seems willing to say that all sales of such stock are immoral. And certainly they're not illegal; people have been buying and selling an enormous volume of Hertz stock.
But even if I say -- Hey this is snake oil don't buy it, I'm still not able to say Snake oil. See 'Radioactive weight loss pills! *contains to radioactive materials'
Correct.
Snake oil is intrinsically bad. We all agree it's bad, and thus, nobody is allowed to sell it, even if they disclose that it is snake oil.
But Hertz shares are apparently not bad. We're clearly happy to see people buying and selling them. Before, during, and well after Hetz's abortive at the money offering, thousands and thousands of people were selling Hertz shares, and I haven't seen anyone suggest they should have been prevented from doing so.
In fact, it seems like the only entity we, as a society, seem to feel shouldn't be allowed to sell Hertz shares is Hertz. Which would be really strange if Herz shares were, metaphorically, radioactive, no?
Snake oil is intrinsically bad. We all agree it's bad, and thus, nobody is allowed to sell it, even if they disclose that it is snake oil.
But Hertz shares are apparently not bad. We're clearly happy to see people buying and selling them. Before, during, and well after Hetz's abortive at the money offering, thousands and thousands of people were selling Hertz shares, and I haven't seen anyone suggest they should have been prevented from doing so.
In fact, it seems like the only entity we, as a society, seem to feel shouldn't be allowed to sell Hertz shares is Hertz. Which would be really strange if Herz shares were, metaphorically, radioactive, no?
Selling snake oil is illegal and immoral because it misrepresents the product.
Selling stock, when you make it clear that your stock is worthless does not misrepresent the product.
And, again - note that Alice is not even required to make such a disclosure, when selling her stock to Bob. The assumption on the stock exchange is that as long as public companies are up front and honest about their financials, it's Bob's responsibility to not buy stupid, overpriced crap.
Selling stock, when you make it clear that your stock is worthless does not misrepresent the product.
And, again - note that Alice is not even required to make such a disclosure, when selling her stock to Bob. The assumption on the stock exchange is that as long as public companies are up front and honest about their financials, it's Bob's responsibility to not buy stupid, overpriced crap.
1. Alice owns three cartons of unfiltered cigarettes. They are harsh and kids don’t buy them.
2. RJ Reynolds owns many cartons of Camels. Reynolds creates a cartoon camel called Joe Camel, who is as recognizable to 6 year olds as Mickey Mouse.
3. Bob is a 11 year old. For some stupid reason, Bob wants to smoke Camels and be cool like Joe.
Is it immoral for Reynolds to sell to an 11 year old? Is it immoral for Alice to sell her cigarettes to Bob?
2. RJ Reynolds owns many cartons of Camels. Reynolds creates a cartoon camel called Joe Camel, who is as recognizable to 6 year olds as Mickey Mouse.
3. Bob is a 11 year old. For some stupid reason, Bob wants to smoke Camels and be cool like Joe.
Is it immoral for Reynolds to sell to an 11 year old? Is it immoral for Alice to sell her cigarettes to Bob?
It's immoral for Alice to sell cigarettes to a minor, and it is also immoral for Reynolds to do so, so the analogy doesn't work.
Since, uh, nobody has an issue with regular stock holders selling their shares to other stock holders.
If Bob is not 'sophisticated' enough to be allowed to buy shares of Hertz regardless of who is selling them, then sure, prevent him from buying. Delist the stock. Require you to be an accredited investor to buy shares of a company undergoing bankruptcy. These are all reasonable solutions to the problem. Stopping Hertz from selling shares... Is not. Because if Bob is an informed/sophisticated/accredited investor, then Hertz selling him shares isn't actually defrauding him.
Since, uh, nobody has an issue with regular stock holders selling their shares to other stock holders.
If Bob is not 'sophisticated' enough to be allowed to buy shares of Hertz regardless of who is selling them, then sure, prevent him from buying. Delist the stock. Require you to be an accredited investor to buy shares of a company undergoing bankruptcy. These are all reasonable solutions to the problem. Stopping Hertz from selling shares... Is not. Because if Bob is an informed/sophisticated/accredited investor, then Hertz selling him shares isn't actually defrauding him.
Just like RJ Reynolds and Joe Camel, the Hertz management knew that their share offering was targeted at investors ill equipped to make a rational decision.
It is bad faith and fraud.
The prevalence of the “it’s just the market” argument and corresponding ethical gap here is disturbing. Read the Ben Horowitz “why I didn’t go to jail” post that was reposted earlier this week. End of the day, everyone who signed off on the Hertz offering decided to paper over an obvious moral hazard with sophistry and bullshit to enrich themselves (via bonuses) and bondholders by defrauding the public.
It is bad faith and fraud.
The prevalence of the “it’s just the market” argument and corresponding ethical gap here is disturbing. Read the Ben Horowitz “why I didn’t go to jail” post that was reposted earlier this week. End of the day, everyone who signed off on the Hertz offering decided to paper over an obvious moral hazard with sophistry and bullshit to enrich themselves (via bonuses) and bondholders by defrauding the public.
So, why is Alice selling her shares to Bob, who is clearly an idiot for paying good money for shares in a bankrupt company not a trade made in bad faith?
In fact, if Hertz sells enough shares, they are no longer bankrupt - which actually makes buying their shares with the intent to hold a rational decision. That's not why Bob is buying them, though, he's buying them because it's a meme stock, and he, I guess, wants to buy meme stocks. He not so unsophisticated that he fails to understand that Hertz is a shitty company.
Why are we protecting him from Hertz, but not from Alice?
In fact, if Hertz sells enough shares, they are no longer bankrupt - which actually makes buying their shares with the intent to hold a rational decision. That's not why Bob is buying them, though, he's buying them because it's a meme stock, and he, I guess, wants to buy meme stocks. He not so unsophisticated that he fails to understand that Hertz is a shitty company.
Why are we protecting him from Hertz, but not from Alice?
The key difference is Hertz created the five shares out of thin air. So Alice now has a diluted position.
A diluted position in a firm that is now more valuable, because it is less likely to be completely eaten by creditors, who will leave the shareholders nothing.
If this were a problem, then companies would not be allowed to dilute shares. They are, though.
Would you rather own all the shares of a worthless company, or some of the shares of a company with a value > 0?
If this were a problem, then companies would not be allowed to dilute shares. They are, though.
Would you rather own all the shares of a worthless company, or some of the shares of a company with a value > 0?
There’s a good moneystuff on this, the sale was also stopped by the SEC even though it wasn’t really illegal (mostly just in poor taste).
Hertz’s job in bankruptcy is to try and pay creditors, if a bunch of dummies want to give you money even though you tell them you’re bankrupt and their investment will likely be worth nothing then how is that Hertz’s fault? Arguably Hertz even has a responsibility to sell shares if they're able to raise money to pay creditors.
The dummies are speculatively buying swings, or more likely just seeing the stock advertised as high traffic in Robinhood.
Hertz’s job in bankruptcy is to try and pay creditors, if a bunch of dummies want to give you money even though you tell them you’re bankrupt and their investment will likely be worth nothing then how is that Hertz’s fault? Arguably Hertz even has a responsibility to sell shares if they're able to raise money to pay creditors.
The dummies are speculatively buying swings, or more likely just seeing the stock advertised as high traffic in Robinhood.
1) US securities laws are very focused on disclosure and filling out the correct forms. Hertz did say the stock was (likely) worthless when they filled out the correct form to sell some stock.
2) People were buying (and selling) Hertz stock every day, before, during, and after Hertz's brief offering. If it should be illegal for Hertz to sell the stock, why should it be legal for anyone else to sell the stock? (The obvious reason is "well, what if Hertz had information nobody else did?", but in this case, they didn't. And they were required to disclose that they didn't.) In a pretty real sense, the victims of Hertz selling stock is not the people who bought it (they would have done so regardless), but the other sellers who might have lost out on a sale (or more likely, made the sale, but for a fraction of a penny less than they otherwise would have done) to a sucker who ended up buying from Hertz instead. And it's hard to feel too sorry for people offloading worthless stock to suckers, no?
(Of course, note that nobody who bought the stock from Hertz will have seen those disclosures. It was an at the money offering; the purchasers won't have any idea who they bought their shares from or how old those shares were. But again, US securities law is extremely focused on disclosure to the exclusion of all else...even if the disclosure won't be seen by anyone.)
2) People were buying (and selling) Hertz stock every day, before, during, and after Hertz's brief offering. If it should be illegal for Hertz to sell the stock, why should it be legal for anyone else to sell the stock? (The obvious reason is "well, what if Hertz had information nobody else did?", but in this case, they didn't. And they were required to disclose that they didn't.) In a pretty real sense, the victims of Hertz selling stock is not the people who bought it (they would have done so regardless), but the other sellers who might have lost out on a sale (or more likely, made the sale, but for a fraction of a penny less than they otherwise would have done) to a sucker who ended up buying from Hertz instead. And it's hard to feel too sorry for people offloading worthless stock to suckers, no?
(Of course, note that nobody who bought the stock from Hertz will have seen those disclosures. It was an at the money offering; the purchasers won't have any idea who they bought their shares from or how old those shares were. But again, US securities law is extremely focused on disclosure to the exclusion of all else...even if the disclosure won't be seen by anyone.)
> If it should be illegal for Hertz to sell the stock, why should it be legal for anyone else to sell the stock?
Hertz wasn't selling existing stock, but were creating new stock. They cannot be equated to an existing shareholder selling his holdings.
Hertz wasn't selling existing stock, but were creating new stock. They cannot be equated to an existing shareholder selling his holdings.
Hertz explicitly stated that shareholders were highly likely to get absolutely nothing. I think it's also highly obvious to even retail investors that this is an incredibly risky bet with potential for a total loss. I don't think there's a strong argument here that buyers didn't know what they were getting in to.
Besides, how is this different than any other shareholder selling their stock, also knowing full well it is entirely likely to be worthless?
Besides, how is this different than any other shareholder selling their stock, also knowing full well it is entirely likely to be worthless?
One difference is it increases the supply, no? With shareholders selling existing shares it's more of a zero sum game.
I don't know if that's an important difference, but it has a different feel to it.
I don't know if that's an important difference, but it has a different feel to it.
If people are choosing to buy the stock, why does it matter if the seller is the company rather than anyone else in the world? The purchasers are getting the same deal. If it's perfectly fine for a purchaser to pay a random investor $2.58 for a share of Hertz, it should be fine for them to purchase the exact same share for $2.58 when the counter party happens to be Hertz.
If Hertz had been dishonest or misleading about the situation then that would be a problem, but they were completely upfront about the risks.
If Hertz had been dishonest or misleading about the situation then that would be a problem, but they were completely upfront about the risks.
I see zero problems with Hertz being allowed to do that. You either forbid stock markets, or you let people sell what other people want to buy.
But in the hindsight, I don't really understand why Hertz wanted to do that. It's obviously good for bankruptcy court, that's clear. It might be good for WSB, for some independent speculators. But what does Hertz as a company gain from that? How can it benefit any of decision-makers? They are going bankrupt anyway, whatever they raise is not their money anymore. Surely they didn't hope selling stock would save them from bankruptcy? So why even bother doing something so sketchy?
But in the hindsight, I don't really understand why Hertz wanted to do that. It's obviously good for bankruptcy court, that's clear. It might be good for WSB, for some independent speculators. But what does Hertz as a company gain from that? How can it benefit any of decision-makers? They are going bankrupt anyway, whatever they raise is not their money anymore. Surely they didn't hope selling stock would save them from bankruptcy? So why even bother doing something so sketchy?
> How was selling more stock in that situation legal?
“We are selling to willing buyers at the current fair market price.”
- Margin Call, 2011
“We are selling to willing buyers at the current fair market price.”
- Margin Call, 2011
Parting a fool from his money is a socially beneficial activity.
meanwhile GME is back to 200+
... and nary a headline. But we do get cautionary tales like the above. Sometimes I get the nagging feeling that the wallstreetbets conspiracy crowd might be on to something.
The medias are really not a critical piece of society these days.. it seems like more than half of it is just noise coverage.
And it will go much, much higher. GME is a short squeeze of epic proportions. It's going to be interesting to see how it plays out.
if the wsb narrative is true - and that if they hold, the shorts must buy at any price - then why don't other knowledgeable traders and institutions recognize that and get in the game?
In other words, if the wsb moon-theory is true, it would have already happened.
Isn't it more likely that the price is, at this point, just getting pumped by memes and wsb throwing good money after bad?
In other words, if the wsb moon-theory is true, it would have already happened.
Isn't it more likely that the price is, at this point, just getting pumped by memes and wsb throwing good money after bad?
Because it’s going to crush the markets and the institutions. If you watch the media, there’s a serious panic going on. There is a serious chance this will cause a sort of financial Armageddon.
Some people in this thread should check their elitism. It is preventing you from seeing the big picture here.
too bad that space Karen never took any interest in pumping hertz.
I deliberately bought a share of Hertz during the craze. I knew it had filed for bankruptcy.
If Hertz was somehow rescued, I could make some money and have an interesting story. Maybe the shareholder meetings would be ridiculous parties with other crazy retail investors.
But even if existing shareholders would be wiped out, I wanted to see first hand what happens in this sort of situation. (So far I haven't received any paperwork.)
If Hertz was somehow rescued, I could make some money and have an interesting story. Maybe the shareholder meetings would be ridiculous parties with other crazy retail investors.
But even if existing shareholders would be wiped out, I wanted to see first hand what happens in this sort of situation. (So far I haven't received any paperwork.)
I never understood how stock market options worked (calls, puts) so I've spent a few dozen dollars buying various stupid out of the money options and following them (and then, agonizing over when to sell!). This has made me understand "the Greeks" better than any textbook alone could have done.
Yup. You gotta pay your tuition to the school of hands on trading for sure. It took quite a while for me to really grasp how they can all work in concert to move a position for and against you even if you are ostensibly right or wrong in your overall thesis.
It's fun to consider, "why's my counterparty selling this?"
Why would be curious about corporate bankruptcy procedures and spend time and money on it is beyond me but I'm sure that's not why the rest bought in.
I'm involved in two cases: MtGox and Grupeer. Neither were publicly traded companies that went bankrupt, but they're insolvency cases in general. In the former I had some play money (by now the coins owed might be worth thousands, but back then it was pennies) and didn't spend time figuring this out properly, in the latter I have a few thousand euros and collectively we (~2500 people) got ourselves a law firm in the relevant jurisdiction. With MtGox, at some point some step on the website didn't work (I felt like I kept having to reiterate that, yes, I still want my coins back) and it seems I now lost my claim or something, I don't quit get it. With Grupeer, I notice that we're on top of every development, filing disputes where necessary, and while I still spent multiple evenings reading through documents and collecting my data for evidence, we've totally got this.
If you ever find yourself with money in a bankruptcy and it is worth more than the lawyer's fee, definitely get a lawyer involved. They know what to file, to whom, when to take which step. The trustee or administrator is not going to come knocking on your door with your dues just like that.
If you ever find yourself with money in a bankruptcy and it is worth more than the lawyer's fee, definitely get a lawyer involved. They know what to file, to whom, when to take which step. The trustee or administrator is not going to come knocking on your door with your dues just like that.
I had some coins in a smaller exchange that went down, as in at least 3-4 bitcoins that were left over in account. Maybe it's worth checking on?
Can someone explain to me what is happening with Hertz? They still seem to be doing business in Australia. I have rented cars with them in recent months.
In my rental contracts it looked like the company was in the US. Has it been bought up?
I have mostly good experiences renting with Hertz and I'd be sad to see them go.
In my rental contracts it looked like the company was in the US. Has it been bought up?
I have mostly good experiences renting with Hertz and I'd be sad to see them go.
It went bankrupt, but will come out of it and continue to exist (with new owners).
"The original meme stock"? The term "pump and dump" is a classic phenomenon that is very common and has happened for decades...this is neither new nor particularly interesting as a specific case.
I thought „pump and dump“ refers to coordinated penny stock fraud whereas this was less of a coordinated scam and more the internet being the internet?
They're not mutually exclusive. But as to what degree GME was or was not a coordinated scam, there's no doubt it has inspired other pump and dump schemes (RKT, DOGE)
The original meme stock was tesla. Get it right.
Original?? Who remembers the glory days of MU!
Honestly when hertz pulled the selling more stock to suckers move I was shocked by the sheer ballsiness of the maneuver. Especially when they admitted that the stock would likely be worthless.
Honestly, this is one of those situations where a bunch of people took a gamble and lost hard. Hopefully it will serve as a lesson for next time.
Honestly, this is one of those situations where a bunch of people took a gamble and lost hard. Hopefully it will serve as a lesson for next time.
I think their buyers would have been the short coverers looking for an exit.
A single share could be bored and shorted multiple times. Not overnight, but with enough time, you can end up with more shares short than shares that exist.
A single share could be bored and shorted multiple times. Not overnight, but with enough time, you can end up with more shares short than shares that exist.
That actually makes a lot of sense. I wonder if that was the play the whole time.
When the stock on the rise, people always think they're the shit, the genius investor blessed with lucky God — until it doesn't.