20 ms·

Never Hertz to Ask

433 points by imartin2k 6y ago

yomly 6y ago
A meme floating around wsb is that the 1k handout is driving this behaviour, and at first I thought that was kind of ridiculous but actually, it makes some sense: On one side you have people who are bored and have nothing to lose, the handout was free money, nothing to spend the money on and no entertainment. On the other side you have people who are desperate for a ticket out of their current situation. Catalysing this is the low barrier of activation provided by Robinhood and the likes...
- ClumsyPilot 6y ago
  It would take a lot more than some redditors with 1k each to move thwbmarket like this
  - hijinks 6y ago
    not saying you are 100% wrong but there was a MASSIVE influx of robinhood buyers into Hertz as the stock crashed https://robintrack.net/symbol/HTZ?symbol=HTZ https://robintrack.net/symbol/HTZ?symbol=HTZ
    - jiofih 6y ago
      160k new stockholders is still a drop in the bucket. The daily average for HTZ is 60M stocks traded. The real action happened on the days leading to that June 6 peak, when it hit $5, and it has already retreated. This is a straight pump-n-dump operation and I’m surprised there has been no crackdown on these in reddit...
      - hijinks 6y ago
        a good friend of mine was a trader for Goldman. He is almost 100% positive the funds and larger firms are pumping this market to get newer retail investors to buy in and right now we are at the top or close to the top of one of the largest bear markets we have seen in a long time. He expects maybe 2-3 weeks of small but choppy rise in the market to hit around Feb highs. Then you will see big time collapse that will make what we saw in Feb seem tiny. Then we will enter a bear market for a good 12-16 months.
        unreal37 6y ago
        I see a lot of traders blaming the "retail investor" for the general rise in stock prices, but retail investors are not even 3% of the market. The HFT and over-leveraged hedge funds are doing something for sure. And they'll blame Robinhood.
        ClumsyPilot 6y ago
        So basically we have the equivalent of "millenials have ruined the housing market" in terns of reporting quality here. Find something negative that happened, and blame it on a weired group of people without checking if the theory is even plausible. Right up there with "4chan elected trump" and "immigrants have ruined the economy"
      - gip 6y ago
        The stock market is the rule of the minority who is looking (sending trade orders for a specific stock, driving price up or down). And for Hertz, the pros may be looking the other way these days because that serves their purpose, letting retail investors drive the price.
  - yomly 6y ago
    Wsb is one community that is a useful heartbeat for overall sentiment but it wouldn't be the first time retail punters wanted to get in on "free money"... like bitcoin
- jddj 6y ago
  Agreed that it's been a number of factors coinciding. (Granting the usual caveat that a lot of the content there is satire...), there sure are a lot of posts there also making reference to dreading offices opening back up, because they won't be able to be at home playing the markets with a beer in hand. While I think people are putting in significantly more than just their trump money, I have to think that giving paid workers the direction to "stay at home, don't do anything, PS. No sports" could have a significant effect on the price of these meme stocks when applied across most of a nation the size of the US. It smacks of the altcoin hype, where momentum was the only indicator.
chii 6y ago
I don't get why everyone is up in arms about a judge allowing Hertz to issue new stock. If these people who are buying (nay, YOLOing) the stock are not coerced or tricked, then there's no problem.
- rwmj 6y ago
  I guess the SEC should be interested in a listed company deliberately selling worthless stock?
  - netsharc 6y ago
    I wonder how much stupidity they should prevent... "My business venture is to look for fallen coins on the ground. Would you like to invest in it?". Even that is too far from this scenario, how about "My business venture is, I ate at expensive restaurants on credit card and now I need money to pay those bills. Would you like to invest in it?"
    - giaour 6y ago
      Doesn’t the public market and IPO process exist explicitly to weed out obviously bad faith “businesses” like the ones you describe, or at least force them to be transparent enough about what they’re doing that no one gets hoodwinked? There are marketplaces where you can buy and sell shares in stuff like the second scenario you describe — that’s essentially a debt consolidation loan, and you can fund one in whole or part at lendingclub.com — but the SEC only allows “qualified investors” to participate. You have to demonstrate that you can easily survive losing your full investment, and there’s no similar requirement for buying publicly traded stocks.
  - slavik81 6y ago
    If they sold enough stock to pay their creditors, they'd escape bankruptcy and potentially not be worthless.
ak39 6y ago
"But then weird things started to happen. Hertz’s stock, which is literally worthless, starts to go up. And up. And up. It gets bid up a whole 500% over a 3-day period last week. What is going on?" This phenomenon is not unique to the recent RobinHood millennials with extra cash and extra money who are bored. There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses (the author even uses Jackass to make the point). Here are some facts. If a stock like HTZ plummets from $20 to 50 cents in a matter of days, the volatility is so great that when the stock spends a few days at the bottom, a few cents up can be seen as strange. Except it's not. Very few people have the intution to appreciate that percentage returns are a function of the price. If a stock gets hit by 90%, it requires 10 times its value to recover the loss. That is 1000 percent! This has happened since the earliest days of stock trading. Here is an example with Enron: https://famous-trials.com/images/ftrials/Enron/documents/enronstockchart.pdf https://famous-trials.com/images/ftrials/Enron/documents/enr... Notice the daily returns from the 3rd of December 2001. So, really, what has been going on forever?
- H8crilA 6y ago
  Don't look at the price action; that on its own is not surprising. Shares in near-bankrupt companies trade like options (because they are options - on the potential of recovery), with extreme volatility one would normally see in individual options contracts. The same way as bonds in near-bankrupt companies trade like stocks, largely ignoring remaining maturity, because very likely bonds will soon become stocks (wiping out the previous equity). Look at the facts. Nobody has done this before: > Jared Ellias, a law professor at the University of California Hastings College of Law, said he has studied hundreds of bankruptcies and never seen a company try to fund a case with an equity offering at the start of chapter 11. > “Hertz looks at the market and sees there is a group of irrational traders who are buying the stock, and the response to that is to seek to sell stock to these people in hopes of raising some amounts of money to fund their restructuring,” Mr. Elias said. > “It is incredibly creative and they get props for that, but I wouldn’t buy those shares,” said Nancy Rapoport, a professor at UNLV’s William S. Boyd School of Law, who said she has never seen a bankruptcy funded this way. “I guess they’re trying to catch whatever the opposite of a falling knife is.”
idoby 6y ago
Can't see why they shouldn't be allowed to raise funds by selling stock. People are free to buy or not to buy, at their discretion. Govt/courts shouldn't be picking winners and they shouldn't be picking losers either.
- nabla9 6y ago
  There are plenty of stocks you can by over-the-counter "freely". Stock exchanges are regulated marketplaces. Regulated marketplaces have existed since the dawn of the civilization because they are valuable for buyers and sellers. City marketplace in a had different rules than trading outside it. Companies go there and voluntarily submit to strict rules and regulations to get access to more investors. Investors wan to invest in regulated markets because regulators work for them.
  - chii 6y ago
    > Investors wan to invest in regulated markets because regulators work for them. no, that's not true. Regulators ensure transparency and correctness of information. It works to everybody's advantage, not just investors. Investors are free to choose bad investments, provided that the investments are made with full and transparent information. Regulators aren't supposed to be there to "protect" investors from making bad choices (what is a bad choice? Who gets to decide that?).
  - idoby 6y ago
    I don't see you complaining about, for example, brokerages, dealers and exchanges providing liquidity by fulfilling your orders even though the market won't at a given point in time. This can prevent a security from falling or rising in value where it otherwise would have, and directly works against an investor who was hoping for a rise/fall in price. Regulators don't work "for investors", they work for lobbyists, they want to keep the markets running, and for any given policy, someone will win and someone will lose. I don't see how the Hertz decision is any different, except I do see how taking the opposite position can hurt the markets, either by creating a chilling effect on low-mktcap companies listing or by creating uncertainty in the legal environment, which investors really don't like. Just look at the number of Israeli companies who won't list in their home turf, TASE, or companies who have and pulled out. A lot of it has to do with TASE imposing unreasonable requirements. Otherwise raising money domestically would be a no-brainer.
argonaut 6y ago
My understanding is that retail trading volume is several orders of magnitude too low to be responsible for swings in most stocks (such as airline stocks), and certainly not the market as a whole. Random low volume penny or bankrupt stocks are a whole different story and retail speculation certainly drives the price.
- christophilus 6y ago
  In small stocks, when using leverage, they can influence things. I can’t find it now (on mobile) but I saw an analysis of HTZ that showed almost all of its rally was due to retail.
  - maayank 6y ago
    If you could find this analysis later I'd appreciate is as well, because I have OP's intuition that retail couldn't cause this
    - quickthrowman 6y ago
      Call buying forces the options market maker to delta hedge by purchasing the underlying. Example: As of market close on Friday, a June 19, 2020 expiration HTZ $3 strike call option cost .55 ($55) and has a delta of .56; if I were to buy a 10 lot for $550, the options market maker would be short 560 deltas and would purchase 560 shares of HTZ to hedge their short call position. This can push the share price up quite a bit if there’s non-stop call buying. The converse is also true for put options, buying puts from an options market maker forces them to sell the underlying to delta hedge.
  - hertzta 6y ago
    I worked at firm that let you trade on leverage a while back. They ended up owning so much of a small stock they couldn’t unwind the position after the leveraged client sold. I think they had to slowly unwind it and take on the risk.
- naveen99 6y ago
  You’d be surprised how little volume it takes to make prices move intraday. Market makers are not rigidly stupid and sell you as much as you want at a fixed price. If you continue to buy aggressively, they will raise the prices while you are buying. Also retail isn’t really well defined in terms of dollar amounts. there are some extremely wealthy people classified as retail. And they don’t need to be as ultra conservative with their trading as institutional traders because they are trading their own money.
tankenmate 6y ago
Reading this made me laugh so hard the tears started to flow. Post Modernism / Post Reality life imitating art. Funniest thing I have read this week. I just hope that "real" people don't get hurt from this (obviously plenty of people have lost or are about to lose their jobs at Hertz which truly sucks), cashed up get rich quick day trading fools on reddit losing money is one thing, some scammed unsuspecting retiree losing their shirt is another. All in all it is Jackass humour meets reddit meets online trading. The world is a strange place.
- chii 6y ago
  > some scammed unsuspecting retiree losing their shirt is another. how could a retiree (or anyone for that matter) be scammed into buying Hertz?!
  - bigiain 6y ago
    Do you know whether your retirement or pension fund hold shares of Hertz? Would you have cared 6months ago?
  - quickthrowman 6y ago
    IRAs are self-directed
- Apocryphon 6y ago
  > Post Modernism / Post Reality life imitating art. If our government and civil society have lost their heads, how can private businesses, indeed our economy, do any less?
H8crilA 6y ago
You might think the smart thing to do is to short the stock, but then the five feet man that tried to cross the four feet river on average yada yada margin call problem. However, there is exactly one entity that can sell short HTZ without ever being margin called. And it is, amazingly, the same entity that can (and almost certainly will) delete the shares. Yes, the company itself, a debtor-in-possession that since the Ch11 filing has officially zero duty to the shareholders and is supposed to maximize the value to the creditors. The Big Short for the March'20 trading mania. While we're here, can we get TSLA to $4000 just like Cathie Wood has predicted? And maybe a second IPO attempt of WeWork? I want a few more cherries on the top and then the re-pricing of risk and the beginning of the recovery.
- konschubert 6y ago
  The one thing that wsb may have understood better than anyone else is that many stocks no longer are bound by their issuer’s value. They have become purely speculative entities just like bitcoin.
  - WJW 6y ago
    In the short term the stock market is a voting machine, being vulnerable to fashions and fads. In the long term it's a weighing machine that evaluates the actual earnings of the company. That was true in 1934 when Graham&Dodd penned it down in "Security Analysis" and it's still true today. Just look at what happened when WeWork tried to go public. It's just that "short" term in the stock market can be a decade or longer.
    - neutronicus 6y ago
      Yeah ultimately you always have the option of treating a stock as what it actually is (a stream of dividends), and the more random prices get, the more people will do that (because more dividend streams will be priced below NPV)
    - sunstone 6y ago
      Or, as in Amazon's case, it measures growth in revenue rather than earnings.
reitzensteinm 6y ago
For those not aware of WSB history, Martin Shkreli was an early member and moderator, and at one point actually tried to reign the YOLO in. https://www.reddit.com/r/wallstreetbets/comments/4ox508/yolo_ban/ https://www.reddit.com/r/wallstreetbets/comments/4ox508/yolo...
- 082349872349872 6y ago
  Sturgeon's Law at work? (skimming further in the thread, I must admit that subreddits subhead is accurate) Going from writing reasoned, informative posts to disrespecting the Wu-Tang Clan must be a pretty tragic arc.
  - throwaway6734 6y ago
    The subreddit is mostly silly goons looking to lose their money, but there is genuine quality in there
    - deleted 6y ago
      [deleted]
- rhaps0dy 6y ago
  > Martin Shkreli was an early member and moderator > u/martinshkreli Surely this is not the actual Shkreli, but rather an impersonator?
  - chiph 6y ago
    The account is apparently being run by a friend while he is "unavailable"
  - martinko 6y ago
    It was the actual Shkreli, back in the days when he was still streaming. Also, he wasn't a very 'early' moderator of WSB, it had been around and popular for a while by the time he showed up.
  - 6y ago
arpinum 6y ago
Question: Have there been bankruptcies where shareholders aren't wiped out, other than government meddling? How much do shareholders who aren't wiped out typically get?
- celticninja 6y ago
  I imagine that if you had enough to pay back one shareholder in a bankruptcy, then you would not go bankrupt. The only way shareholders get anything is if all other creditors get paid in full first. If you can do that then you are not bankrupt.
- goodcanadian 6y ago
  Yes, sort of. If the company is wound down, the shareholders are unlikely to get anything. However, companies are usually worth more as a going concern, so administrators will try to restructure the debt to allow the company to come out of bankruptcy. In that case, shareholders still own their shares though they are likely to be highly diluted; debt holders may only be willing to restructure in exchange for equity, for example.
  - danielisaac 6y ago
    Agree with the above. There are also cases in which secured or unsecured creditors will vote for a Chapter 11 reorganization plan to give something to equity holders--even in violation of typical absolute priority--if it helps get the plan approved quickly. Equity holders might also keep their shares if there's "new value" added to the reorganized company (the controlling case is Bank of America v. 203 North LaSalle Street Partnership). There are a handful of other instances, but none are especially common.
- sgerenser 6y ago
  During American Airlines 2011 bankruptcy and subsequent merger with US Airways. Creditors ended up getting paid in full and people who bought the stock for a few pennies made 40x on their investment. https://www.wsj.com/articles/shares-of-bankrupt-american-airlines-go-sky-high-1386117530 https://www.wsj.com/articles/shares-of-bankrupt-american-air...
drtillberg 6y ago
The fundamentals of Hertz are terrible, but the market as a whole doesn't trade on fundamentals anymore, so this is unexpected as a matter of degree. Still, I suspect that despite the rhetoric surrounding this dead cat bounce, the nonzero Hertz stock price is more a result of market structure. I saw similar delayed declines years ago (when I followed the market more closely) in several contexts that I attributed to the interplay between the equity and options markets. In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity. TL;DR: Someone in this system besides Hertz probably is acting normally and rationally, and the Hertz price action merely is delayed by the market structure, specifically, options activity.
- quickthrowman 6y ago
  > In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity. AFAIK this is because of gamma increasing as an option nears expiration, option dealers need to buy and sell more of the underlying as the changes in delta get larger due to the increased gamma. If there is a near-the-money option with large open interest, the underlying may pin to this strike price due to dealer hedging around this strike price. Once the option series expires, underlying hedges can be unwound on the following Monday. ‘Option pinning’ as a search term will provide more info
sam_goody 6y ago
Can I suggest that it should be legal to create a Pnozi scheme, as long as you are up front and absolutely clear that that is what you are doing. It seems to me that situations like the current one with Hertz are really just Ponzi schemes played out with stocks. If we could do this legally, I bet you there would be a lot of these, and the ones playing would know what they are in for. (And there would be less incentive to do it illegally). If Dave Portnoy and Warren Buffet both started a pyramid, who could grow the larger one before bust? Would you buy?
- quickthrower2 6y ago
  Cough crypto!
- sjg007 6y ago
  Ponzi only works when there are greater fools.
- rtempaccount1 6y ago
  Ultimately the end of any pyramid scheme is a large number of people losing money , often money they can't afford to lose. It doesn't seem likely to be in the interests of most governments to actively encourage straight Ponzi schemes as when the people at the bottom of the pyramid lose their money, they may end up requiring state assistance, transferring the risk to taxpayers.
  - leetcrew 6y ago
    sounds a lot like regular old gambling. most will lose, but a few will win through luck or skill. if it's clear up front that the expected value is negative, I don't really see a reason to ban it. most forms of entertainment involve losing money.
    - rtempaccount1 6y ago
      The people who "win" at Pyramid schemes aren't (IMO OFC) winning through luck, they're winning by being the people that set them up. And in the US and many other countries gambling is regulated, so that the games have certain parameters and the risks are known, can't see that being applied to pyramid schemes.
draw_down 6y ago
I don’t agree with the underlying assumption, which is that the stock market was a sober, rational affair until these yahoos showed up. It has always been a casino. Nobody knows, nobody ever has known, why stocks move how they do, or when they will move.
- goblin89 6y ago
  According to NNT (Black Swan etc.), investing in stocks is in some ways even less predictable than a casino. Your possible maximum win in a casino is precisely limited (if the house did its math), while with a market a black swan can get you up in an unbounded way. However, the market as a whole tends to be stable, so that one can invest in say index funds for modest but reliable long-term growth. I might be off, but as far as I can tell the question now is whether even that stability is becoming past tense now.
  - draw_down 6y ago
    Good point, casinos operate in the ludic realm, where probability calculations can actually mean something. Your second paragraph is just illustrating the point though- yes there are times when it can appear to make sense, just like you can get a "hot hand" in craps. They're two instances of the same thing. It's illusory, nobody ever knows what is going to happen, ever.
truculent 6y ago
Nice story, although something about the clean distinction of the third type of bubble seems imperfect to me. The difference being that in the other two types of bubble there are still many people (not a majority) who are trading on the predicted behaviour of other traders (rather than a prediction about the future being the same or better).
cheesecracker 6y ago
Ok, so it's fun and games, but how much money exactly is being thrown at that game?
- zacherates 6y ago
  From the Hertz bankruptcy motion (via Money Stuff/Matt Levine): "246,775,008 shares of common stock" or another way "Hertz could potentially offer up to and including an aggregate of $1.0 billion of common stock" ... so, a lot.
curation 6y ago
The retail investors are fully aware of what the author describes and are pushing their conclusion forward: Nothing matters. Being trapped in binaries we strangle. This is a cultural disavowel landing on an economic register. Dragging white supremacy into the public realm is another such motion.
bronzeage 6y ago
Uber / Lyft / Snap were never cash flow positive, and don't have any clear way of reaching that, while User is burning 2 billions a quarter and has only two more quarters to go bust. There are tons of VC unicorns which are burning investors money on unsustainable business models, like food delivery apps that subsidize your orders. WeWork has no chance of avoiding bankrupcy. The irrational exuberence has been here for quite some time already, and out of everything, a bankrupt company which at least used to have a working business model and existed for 100 years is not nearly the most insane investments going on here. (The insanity is buying it before the bankruptcy restructuring, tho).
- wpietri 6y ago
  Agreed. The thing that seems especially bonkers to me is that the theory of Uber is that you could turn a low-margin business into a high-margin business by a) shifting most of your risk (opex, capex, labor costs) to low wage workers too desperate to negotiate a fair deal, and b) spending massively to get Google-ish monopoly pricing over a key activity. Point A is looking more and more false. Uber took on a lot of costs; instead of running a very lean operation, they spent like a tech company. They're having a hard time weathering this downturn. Governments are catching up to them on their labor-isn't-labor regulatory arbitrage, and I expect that come 2021, they'll see national-scale questions about their worker exploitation. Point B is looking even worse. Once they failed to kill Lyft, extracting monopoly rents went out the window. And now a bunch of well-funded organizations with strong brands are coming after their business with autonomous cars. It won't be easy competing with Google on software. It won't be easy competing with GM on cars. And plenty of companies have brands compatible with becoming a preferred transportation provider. E.g., imagine BMW's autonomous car service. Or even worse from Uber's perspective, Costco. That's something like a quarter of American households. It's perfectly plausible to me that Uber will never hit breakeven in terms of total profit exceeding total investment. By 2040, they could be in the same bucket as Groupon: an early darling that still exists but people barely remember.
  - flashyfaffe2 6y ago
    Everything being equal,isn't what Amazon did before anyone else? Burning astonishing amount of cash and create a massive monopoly. Prof Galloway, gave very interesting thoughts: https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf
aazaa 6y ago
>... But you know what kind of public companies have zero earnings for years at a time, and where future earnings are so far away that it’s already understood by everyone to be a day-to-day game of chicken, just like this? Biotech companies. And you know what kind of companies are going to be really interesting in the aftermath of Covid? Biotech companies. Sounds sorta like Amazon. It's one giant game of expanding P/E multiple. The bulls say tell me what I'm missing is that Amazon could turn on earnings like flipping a switch. They just don't want to. It's more efficient if AMZN holds on to the money. My response is that it's always been that way with this company. Same story in 1999. Also sounds sorta like Microsoft. Sounds definitely like Tesla. Sounds, in fact, like way too many companies. There's a bubble here of biblical proportions. The Fed has suspended the inevitable in the name of economic survival. But the signs were everywhere pre-COVID. Now, no severe decline in stocks will be tolerated. It's Powell Puts as far as the eye can see. The returns will be jaw-dropping. The valuations will be lunar. Still, it would be a terrible thing to be riding in this particular shopping cart when it smacks into the wall.
- xuki 6y ago
  I can see how you view Amazon that way but Microsoft is a money printing machine with real profit, and its PE is not unreasonable.
- RhodesianHunter 6y ago
  > It's more efficient if AMZN holds on to the money. My response is that it's always been that way with this company. Same story in 1999. And they've grown revenue 30% year over year. This is not a great example.
anonu 6y ago
Have you guys come across Dave Portnoy @stoolpresidente on Twitter. This guy embodies everything that is wrong with the retail/millennial/wsb crowd. But remember that the markets are a beautiful thing. There are millions of inputs into the pricing function. If the price is wrong, then arbitrageurs will come in and bring it in line with where it "should be". There is nothing wrong with that.
- otterley 6y ago
  Mr. Portnoy is discussed in the article.
- FartyMcFarter 6y ago
  Isn't it a persona?
- soared 6y ago
  Dave portnoy is not a millennial, FYI. He’s like 45. But he owns barstool sports and literally exists to drive pageviews. There are no sports so he turned to sticks, just like it’s described in the article. Unlike wsb he’s worth tens of millions so losing $1MM is less significant than it would be for most. But yeah, awful for the stock market undoubtedly.
  - asdff 6y ago
    Is he really any worse than Cramer taking advantage of retired geriatrics with declining faculties on daytime cnbc?
- purple_ferret 6y ago
  Wow, what happened to this guy? I thought he reviewed pizza joints. Seems like he's turned to pump and dump schemes, which is pretty low.
  - ac29 6y ago
    He started Barstool sports, a company now worth ~$0.5B. He's personally worth tens of millions as a result of this. He does a little more than eat pizza on the internet these days (though still does that too).
jiofih 6y ago
Do Robinhood and WSB even show up at all in the charts? Institutional investors own 99% of stocks, you cannot really move a high volume stock with these individual traders.
- anonyxyz 6y ago
  The HGTs and algorithmic traders react to retail trades, so in that sense retail investors can contribute to moving the market.
- naveen99 6y ago
  Retail owns 30% according to top google results.
cs702 6y ago
"The YOLO Stock Market" The vast majority of equity investors -- including quite a few professional portfolio managers -- have only a faintly vague understanding of how bankruptcy works. Many couldn’t tell you the difference between a Chapter 7 and a Chapter 11 filing in the US Bankruptcy Code without first looking it up on Google. But details such as "who gets what in a bankruptcy" are irrelevant to people who are trying to "beat the gun," as J. M. Keynes described it nine decades ago: > It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it 'for keeps', but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence. > Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is 'to beat the gun', as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow. > This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional;—it can be played by professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated. > Or, to change the metaphor slightly, professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees. Source: https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmployment.pdf https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmpl...
rexreed 6y ago
Side topic: the rental car industry is a dinosaur walking. Just like Netflix and video-on-demand put Blockbuster out of business, Uber and rideshare companies are slowly putting the kabosh on rental car business. I can't remember the last time I really needed to rent a car. Maybe for the random site-seeing roadtrip. But vacationers aren't rental company's bread and butter: it's business travelers. And business travelers are seeing much more convenience from rideshare than from rentals. The hassle of renting a car, parking, tolls, gas, dealing with insurance and liability, and just the shenanigans of rental car companies is not worth the hassle. It took a solid decade before the impact of video on demand was felt on Blockbuster, but it was inevitable. Just how COVID is bringing the water out of shore on the low tide, all it is doing is exposing already weak companies. Those that fail can't simply blame COVID, altho it's certainly a contributor. For some, the writing was already on the wall. In 10 years we'll be writing the post-mortem on the rental car industry.
- adrianmonk 6y ago
  Last time I rented a car it was because the hotel and airport were on opposite sides of a big city. Renting a car for 3 days was cheaper than two 40-mile Uber/Lyft trips. Because airports are often located on the edge of a city, this is a pretty common situation. Convenience matters, but so does cost, so I expect rental car companies will continue to get this sort of business.
- kyriakos 6y ago
  Or with self-driving cars the rental industry will become the next uber since they won't need a driver. Everyone would just lease a "car privilege" from a rental company which (or others) would be picking you up whenever you need it following your patterns a fleet of cars will be shared among more people. This would reduce pollution, waste and traffic in large cities.
  - bigtunacan 6y ago
    I don't disagree with that model, but I don't think that is "the next Uber". That is just Uber in a few years. It is common knowledge that self-driving cars are Uber's long game. They are trying their hardest to get there so they can eliminate their biggest cost; paying drivers.
tomgp 6y ago
I’d argue the third ‘new’ bubble type is actually the platonic ideal underlying the first two types.
LatteLazy 6y ago
The author has missed a few important points to paint a picture that ultimately misses reality. First, Hertz isn't worthless because it has restructured. Even if hertz is ultimately wound up because its debts exceed its assets (something very very unlikely historically) its shares today are worth something because there is still the chance thelat may not happen (including the chance the company will be saved by a bailout) Second, the traders he refers to are speculators. Speculators fulfill a role that is a well understood and widely agreed to be important for both liquidity and price discovery. Third, if other people are bidding price up (or down), who cares? You're not a share holder in a "worthless" company, so let them run their casino in that little corner of the market and you can invest in the other 99.99%. Ge should also Google what a "dead cat bounce" is to better understand crashed stocks' behavior...
- atombender 6y ago
  > First, Hertz isn't worthless because it has restructured. Hertz has not restructured yet. They filed for Chapter 11 bankruptcy on May 22.
  - LatteLazy 6y ago
    True, but chapter 11 means they will restructure and that’s the value you’re buying...
    - aembleton 6y ago
      What stops their creditors taking the company? They don't have enough to pay them off.
      - sgerenser 6y ago
        An extra billion dollars from a stock sale might go a long way in paying off creditors.
      - LatteLazy 6y ago
        Well first, what makes you so sure they don’t have more assets than liabilities? The filed for chapter 11 (restructuring) not chapter 7 (liquidation). And second, even if their liabilities exceed their (physical) assets, creditors are very reluctant to actually liquidate larger businesses. I don’t know exactly why but just looking historically, creditors tend to be much more willing to take a haircut and keep at least parts of the business operational than to demand their full pound of flesh...
roland35 6y ago
Day trading does not appeal to me at all because it feels exactly like gambling, but I can see the appeal and I hear more of my friends talking about it. I can see the alure, but I do believe in the end the "Boglehead" strategy is the best long term low stress investment strategy (low expense mutual funds in tax advantaged accounts). This type of situation with Hertz definitely feels like a unique combination of events (corona, gig economy, etc) but I won't be surprised if we have more and more weird stock situations occur as weird internet culture leaks into the real world...
donatj 6y ago
> Hertz was in trouble anyway; it’s carrying around a ton of debt to pay for a fleet of cars that no one wants to drive, because we have Uber now. Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving. I still however rent a car on vacation. I like the freedom to just be like “I wonder where that road ends up” and end up exploring 50 miles out of town.
- s09dfhks 6y ago
  >Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving. More or less yea (assuming wherever we're traveling has uber)
  - donatj 6y ago
    It seems like that would very quickly become much more expensive than just renting a car.
    - capableweb 6y ago
      Depends. If you're going somewhere for just a weekend and you don't go around outside cities all the time, it's probably cheaper to just use Uber for the 3-6 times you need it, rather than having to rent a car. If it's a very different country it's probably easier to go with taxis/uber rather than driving in an unfamiliar environment with regulations and driving culture you don't know 100% as well.
    - joshcain 6y ago
      Parking is really expensive in a lot of cities. Easily $40/night+ if you're leaving a car at your hotel, plus you have to pay to park while sightseeing/etc.
burlesona 6y ago
This is not really surprising to me. When you have a prolonged zero interest rate policy, and “there is no alternative” then the only thing left to do if you want to make money on your money is gamble. To me the Robin Hood traders are not creating this phenomenon, rather they are just making it plainly visible as it goes mainstream.
- phkahler 6y ago
  Low interest rates are destroying everything.
ncrmro 6y ago
WSB being compared to Jackass really sums up that whole group.
baby 6y ago
BTW I've been trying to buy a car from Hertz.com, and it's been pretty much impossible. Whenever I call they tell me weird things like "we lost the key for this car" or "we'll call you back". They never call back. They don't answer to my emails either. This is weird.
- RhodesianHunter 6y ago
  Why would they try to sell you their inventory if they think there's a chance the company will be saved as discussed in the article?
rsp1984 6y ago
And here we are, today making fun of all those supposed jackasses exchanging cash for - such obviously worthless! - things such as Hertz stock, and tomorrow going back to our jobs that pay us in - so obviously valuable! - fiat money, some of which we may "invest in" such obviously valuable things as Bitcoin... Go figure!
- mam2 6y ago
  Whats even your point
jimmysong 6y ago
I've seen this happen to a number of bankrupt companies, this just happens to be a big one. The expectation is that the stock go to zero, but somehow it bounces upwards. Happened with GM back in 2008-2009, happens to a lot of other stocks that are in bankruptcy. The stock becomes unmoored from the actual company and trades like a weird collectible.
drited 6y ago
Cost of borrow for hertz shares reached over 140 percent last week. Some of the purchasing could well have been driven by hedge funds which were short but had to buy stock to exit their positions after available shares to borrow dried up and their brokers forced them out of the position.
sytelus 6y ago
One of the key why stocks of bankrupt companies like Hertz go up 500% in matter of days is so called “river of money”. Globally, there is massive amount of cash sloshing around through people’s retirement accounts which ends up at places like Robinhood, Blackrock etc. When you sign up for 401K, you are putting money in this river where these gamblers take a dip. The bottom line is that no one is playing with their own money and so gambling, short term profit jacking etc are full on. The principles of value investing, looking at future long term returns is all down the drain. Even the many big tech boards are almost exclusively run by investor suits looking to squeeze out money in short term and walk away. If the situation continues, I think stock market isn’t going to be viable channel for public investment in long run.
- ac29 6y ago
  > no one is playing with their own money Who's money is it then?
  - ric2b 6y ago
    The people investing in the funds.

433 points by imartin2k 6y ago

A meme floating around wsb is that the 1k handout is driving this behaviour, and at first I thought that was kind of ridiculous but actually, it makes some sense: On one side you have people who are bored and have nothing to lose, the handout was free money, nothing to spend the money on and no entertainment. On the other side you have people who are desperate for a ticket out of their current situation. Catalysing this is the low barrier of activation provided by Robinhood and the likes...

ClumsyPilot 6y ago
It would take a lot more than some redditors with 1k each to move thwbmarket like this
- hijinks 6y ago
  not saying you are 100% wrong but there was a MASSIVE influx of robinhood buyers into Hertz as the stock crashed https://robintrack.net/symbol/HTZ?symbol=HTZ https://robintrack.net/symbol/HTZ?symbol=HTZ
  - jiofih 6y ago
    160k new stockholders is still a drop in the bucket. The daily average for HTZ is 60M stocks traded. The real action happened on the days leading to that June 6 peak, when it hit $5, and it has already retreated. This is a straight pump-n-dump operation and I’m surprised there has been no crackdown on these in reddit...
    - hijinks 6y ago
      a good friend of mine was a trader for Goldman. He is almost 100% positive the funds and larger firms are pumping this market to get newer retail investors to buy in and right now we are at the top or close to the top of one of the largest bear markets we have seen in a long time. He expects maybe 2-3 weeks of small but choppy rise in the market to hit around Feb highs. Then you will see big time collapse that will make what we saw in Feb seem tiny. Then we will enter a bear market for a good 12-16 months.
      - unreal37 6y ago
        I see a lot of traders blaming the "retail investor" for the general rise in stock prices, but retail investors are not even 3% of the market. The HFT and over-leveraged hedge funds are doing something for sure. And they'll blame Robinhood.
        ClumsyPilot 6y ago
        So basically we have the equivalent of "millenials have ruined the housing market" in terns of reporting quality here. Find something negative that happened, and blame it on a weired group of people without checking if the theory is even plausible. Right up there with "4chan elected trump" and "immigrants have ruined the economy"
    - gip 6y ago
      The stock market is the rule of the minority who is looking (sending trade orders for a specific stock, driving price up or down). And for Hertz, the pros may be looking the other way these days because that serves their purpose, letting retail investors drive the price.
- yomly 6y ago
  Wsb is one community that is a useful heartbeat for overall sentiment but it wouldn't be the first time retail punters wanted to get in on "free money"... like bitcoin
jddj 6y ago
Agreed that it's been a number of factors coinciding. (Granting the usual caveat that a lot of the content there is satire...), there sure are a lot of posts there also making reference to dreading offices opening back up, because they won't be able to be at home playing the markets with a beer in hand. While I think people are putting in significantly more than just their trump money, I have to think that giving paid workers the direction to "stay at home, don't do anything, PS. No sports" could have a significant effect on the price of these meme stocks when applied across most of a nation the size of the US. It smacks of the altcoin hype, where momentum was the only indicator.

chii 6y ago

I don't get why everyone is up in arms about a judge allowing Hertz to issue new stock. If these people who are buying (nay, YOLOing) the stock are not coerced or tricked, then there's no problem.

rwmj 6y ago
I guess the SEC should be interested in a listed company deliberately selling worthless stock?
- netsharc 6y ago
  I wonder how much stupidity they should prevent... "My business venture is to look for fallen coins on the ground. Would you like to invest in it?". Even that is too far from this scenario, how about "My business venture is, I ate at expensive restaurants on credit card and now I need money to pay those bills. Would you like to invest in it?"
  - giaour 6y ago
    Doesn’t the public market and IPO process exist explicitly to weed out obviously bad faith “businesses” like the ones you describe, or at least force them to be transparent enough about what they’re doing that no one gets hoodwinked? There are marketplaces where you can buy and sell shares in stuff like the second scenario you describe — that’s essentially a debt consolidation loan, and you can fund one in whole or part at lendingclub.com — but the SEC only allows “qualified investors” to participate. You have to demonstrate that you can easily survive losing your full investment, and there’s no similar requirement for buying publicly traded stocks.
- slavik81 6y ago
  If they sold enough stock to pay their creditors, they'd escape bankruptcy and potentially not be worthless.

ak39 6y ago

"But then weird things started to happen. Hertz’s stock, which is literally worthless, starts to go up. And up. And up. It gets bid up a whole 500% over a 3-day period last week. What is going on?" This phenomenon is not unique to the recent RobinHood millennials with extra cash and extra money who are bored. There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses (the author even uses Jackass to make the point). Here are some facts. If a stock like HTZ plummets from $20 to 50 cents in a matter of days, the volatility is so great that when the stock spends a few days at the bottom, a few cents up can be seen as strange. Except it's not. Very few people have the intution to appreciate that percentage returns are a function of the price. If a stock gets hit by 90%, it requires 10 times its value to recover the loss. That is 1000 percent! This has happened since the earliest days of stock trading. Here is an example with Enron: https://famous-trials.com/images/ftrials/Enron/documents/enronstockchart.pdf https://famous-trials.com/images/ftrials/Enron/documents/enr... Notice the daily returns from the 3rd of December 2001. So, really, what has been going on forever?

H8crilA 6y ago
Don't look at the price action; that on its own is not surprising. Shares in near-bankrupt companies trade like options (because they are options - on the potential of recovery), with extreme volatility one would normally see in individual options contracts. The same way as bonds in near-bankrupt companies trade like stocks, largely ignoring remaining maturity, because very likely bonds will soon become stocks (wiping out the previous equity). Look at the facts. Nobody has done this before: > Jared Ellias, a law professor at the University of California Hastings College of Law, said he has studied hundreds of bankruptcies and never seen a company try to fund a case with an equity offering at the start of chapter 11. > “Hertz looks at the market and sees there is a group of irrational traders who are buying the stock, and the response to that is to seek to sell stock to these people in hopes of raising some amounts of money to fund their restructuring,” Mr. Elias said. > “It is incredibly creative and they get props for that, but I wouldn’t buy those shares,” said Nancy Rapoport, a professor at UNLV’s William S. Boyd School of Law, who said she has never seen a bankruptcy funded this way. “I guess they’re trying to catch whatever the opposite of a falling knife is.”

idoby 6y ago

Can't see why they shouldn't be allowed to raise funds by selling stock. People are free to buy or not to buy, at their discretion. Govt/courts shouldn't be picking winners and they shouldn't be picking losers either.

nabla9 6y ago
There are plenty of stocks you can by over-the-counter "freely". Stock exchanges are regulated marketplaces. Regulated marketplaces have existed since the dawn of the civilization because they are valuable for buyers and sellers. City marketplace in a had different rules than trading outside it. Companies go there and voluntarily submit to strict rules and regulations to get access to more investors. Investors wan to invest in regulated markets because regulators work for them.
- chii 6y ago
  > Investors wan to invest in regulated markets because regulators work for them. no, that's not true. Regulators ensure transparency and correctness of information. It works to everybody's advantage, not just investors. Investors are free to choose bad investments, provided that the investments are made with full and transparent information. Regulators aren't supposed to be there to "protect" investors from making bad choices (what is a bad choice? Who gets to decide that?).
- idoby 6y ago
  I don't see you complaining about, for example, brokerages, dealers and exchanges providing liquidity by fulfilling your orders even though the market won't at a given point in time. This can prevent a security from falling or rising in value where it otherwise would have, and directly works against an investor who was hoping for a rise/fall in price. Regulators don't work "for investors", they work for lobbyists, they want to keep the markets running, and for any given policy, someone will win and someone will lose. I don't see how the Hertz decision is any different, except I do see how taking the opposite position can hurt the markets, either by creating a chilling effect on low-mktcap companies listing or by creating uncertainty in the legal environment, which investors really don't like. Just look at the number of Israeli companies who won't list in their home turf, TASE, or companies who have and pulled out. A lot of it has to do with TASE imposing unreasonable requirements. Otherwise raising money domestically would be a no-brainer.

argonaut 6y ago

My understanding is that retail trading volume is several orders of magnitude too low to be responsible for swings in most stocks (such as airline stocks), and certainly not the market as a whole. Random low volume penny or bankrupt stocks are a whole different story and retail speculation certainly drives the price.

christophilus 6y ago
In small stocks, when using leverage, they can influence things. I can’t find it now (on mobile) but I saw an analysis of HTZ that showed almost all of its rally was due to retail.
- maayank 6y ago
  If you could find this analysis later I'd appreciate is as well, because I have OP's intuition that retail couldn't cause this
  - quickthrowman 6y ago
    Call buying forces the options market maker to delta hedge by purchasing the underlying. Example: As of market close on Friday, a June 19, 2020 expiration HTZ $3 strike call option cost .55 ($55) and has a delta of .56; if I were to buy a 10 lot for $550, the options market maker would be short 560 deltas and would purchase 560 shares of HTZ to hedge their short call position. This can push the share price up quite a bit if there’s non-stop call buying. The converse is also true for put options, buying puts from an options market maker forces them to sell the underlying to delta hedge.
- hertzta 6y ago
  I worked at firm that let you trade on leverage a while back. They ended up owning so much of a small stock they couldn’t unwind the position after the leveraged client sold. I think they had to slowly unwind it and take on the risk.
naveen99 6y ago
You’d be surprised how little volume it takes to make prices move intraday. Market makers are not rigidly stupid and sell you as much as you want at a fixed price. If you continue to buy aggressively, they will raise the prices while you are buying. Also retail isn’t really well defined in terms of dollar amounts. there are some extremely wealthy people classified as retail. And they don’t need to be as ultra conservative with their trading as institutional traders because they are trading their own money.

tankenmate 6y ago

Reading this made me laugh so hard the tears started to flow. Post Modernism / Post Reality life imitating art. Funniest thing I have read this week. I just hope that "real" people don't get hurt from this (obviously plenty of people have lost or are about to lose their jobs at Hertz which truly sucks), cashed up get rich quick day trading fools on reddit losing money is one thing, some scammed unsuspecting retiree losing their shirt is another. All in all it is Jackass humour meets reddit meets online trading. The world is a strange place.

chii 6y ago
> some scammed unsuspecting retiree losing their shirt is another. how could a retiree (or anyone for that matter) be scammed into buying Hertz?!
- bigiain 6y ago
  Do you know whether your retirement or pension fund hold shares of Hertz? Would you have cared 6months ago?
- quickthrowman 6y ago
  IRAs are self-directed
Apocryphon 6y ago
> Post Modernism / Post Reality life imitating art. If our government and civil society have lost their heads, how can private businesses, indeed our economy, do any less?

H8crilA 6y ago

You might think the smart thing to do is to short the stock, but then the five feet man that tried to cross the four feet river on average yada yada margin call problem. However, there is exactly one entity that can sell short HTZ without ever being margin called. And it is, amazingly, the same entity that can (and almost certainly will) delete the shares. Yes, the company itself, a debtor-in-possession that since the Ch11 filing has officially zero duty to the shareholders and is supposed to maximize the value to the creditors. The Big Short for the March'20 trading mania. While we're here, can we get TSLA to $4000 just like Cathie Wood has predicted? And maybe a second IPO attempt of WeWork? I want a few more cherries on the top and then the re-pricing of risk and the beginning of the recovery.

konschubert 6y ago
The one thing that wsb may have understood better than anyone else is that many stocks no longer are bound by their issuer’s value. They have become purely speculative entities just like bitcoin.
- WJW 6y ago
  In the short term the stock market is a voting machine, being vulnerable to fashions and fads. In the long term it's a weighing machine that evaluates the actual earnings of the company. That was true in 1934 when Graham&Dodd penned it down in "Security Analysis" and it's still true today. Just look at what happened when WeWork tried to go public. It's just that "short" term in the stock market can be a decade or longer.
  - neutronicus 6y ago
    Yeah ultimately you always have the option of treating a stock as what it actually is (a stream of dividends), and the more random prices get, the more people will do that (because more dividend streams will be priced below NPV)
  - sunstone 6y ago
    Or, as in Amazon's case, it measures growth in revenue rather than earnings.

reitzensteinm 6y ago

For those not aware of WSB history, Martin Shkreli was an early member and moderator, and at one point actually tried to reign the YOLO in. https://www.reddit.com/r/wallstreetbets/comments/4ox508/yolo_ban/ https://www.reddit.com/r/wallstreetbets/comments/4ox508/yolo...

082349872349872 6y ago
Sturgeon's Law at work? (skimming further in the thread, I must admit that subreddits subhead is accurate) Going from writing reasoned, informative posts to disrespecting the Wu-Tang Clan must be a pretty tragic arc.
- throwaway6734 6y ago
  The subreddit is mostly silly goons looking to lose their money, but there is genuine quality in there
  - deleted 6y ago
    [deleted]
rhaps0dy 6y ago
> Martin Shkreli was an early member and moderator > u/martinshkreli Surely this is not the actual Shkreli, but rather an impersonator?
- chiph 6y ago
  The account is apparently being run by a friend while he is "unavailable"
- martinko 6y ago
  It was the actual Shkreli, back in the days when he was still streaming. Also, he wasn't a very 'early' moderator of WSB, it had been around and popular for a while by the time he showed up.
- 6y ago

arpinum 6y ago

Question: Have there been bankruptcies where shareholders aren't wiped out, other than government meddling? How much do shareholders who aren't wiped out typically get?

celticninja 6y ago
I imagine that if you had enough to pay back one shareholder in a bankruptcy, then you would not go bankrupt. The only way shareholders get anything is if all other creditors get paid in full first. If you can do that then you are not bankrupt.
goodcanadian 6y ago
Yes, sort of. If the company is wound down, the shareholders are unlikely to get anything. However, companies are usually worth more as a going concern, so administrators will try to restructure the debt to allow the company to come out of bankruptcy. In that case, shareholders still own their shares though they are likely to be highly diluted; debt holders may only be willing to restructure in exchange for equity, for example.
- danielisaac 6y ago
  Agree with the above. There are also cases in which secured or unsecured creditors will vote for a Chapter 11 reorganization plan to give something to equity holders--even in violation of typical absolute priority--if it helps get the plan approved quickly. Equity holders might also keep their shares if there's "new value" added to the reorganized company (the controlling case is Bank of America v. 203 North LaSalle Street Partnership). There are a handful of other instances, but none are especially common.
sgerenser 6y ago
During American Airlines 2011 bankruptcy and subsequent merger with US Airways. Creditors ended up getting paid in full and people who bought the stock for a few pennies made 40x on their investment. https://www.wsj.com/articles/shares-of-bankrupt-american-airlines-go-sky-high-1386117530 https://www.wsj.com/articles/shares-of-bankrupt-american-air...

drtillberg 6y ago

The fundamentals of Hertz are terrible, but the market as a whole doesn't trade on fundamentals anymore, so this is unexpected as a matter of degree. Still, I suspect that despite the rhetoric surrounding this dead cat bounce, the nonzero Hertz stock price is more a result of market structure. I saw similar delayed declines years ago (when I followed the market more closely) in several contexts that I attributed to the interplay between the equity and options markets. In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity. TL;DR: Someone in this system besides Hertz probably is acting normally and rationally, and the Hertz price action merely is delayed by the market structure, specifically, options activity.

quickthrowman 6y ago
> In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity. AFAIK this is because of gamma increasing as an option nears expiration, option dealers need to buy and sell more of the underlying as the changes in delta get larger due to the increased gamma. If there is a near-the-money option with large open interest, the underlying may pin to this strike price due to dealer hedging around this strike price. Once the option series expires, underlying hedges can be unwound on the following Monday. ‘Option pinning’ as a search term will provide more info

sam_goody 6y ago

Can I suggest that it should be legal to create a Pnozi scheme, as long as you are up front and absolutely clear that that is what you are doing. It seems to me that situations like the current one with Hertz are really just Ponzi schemes played out with stocks. If we could do this legally, I bet you there would be a lot of these, and the ones playing would know what they are in for. (And there would be less incentive to do it illegally). If Dave Portnoy and Warren Buffet both started a pyramid, who could grow the larger one before bust? Would you buy?

quickthrower2 6y ago
Cough crypto!
sjg007 6y ago
Ponzi only works when there are greater fools.
rtempaccount1 6y ago
Ultimately the end of any pyramid scheme is a large number of people losing money , often money they can't afford to lose. It doesn't seem likely to be in the interests of most governments to actively encourage straight Ponzi schemes as when the people at the bottom of the pyramid lose their money, they may end up requiring state assistance, transferring the risk to taxpayers.
- leetcrew 6y ago
  sounds a lot like regular old gambling. most will lose, but a few will win through luck or skill. if it's clear up front that the expected value is negative, I don't really see a reason to ban it. most forms of entertainment involve losing money.
  - rtempaccount1 6y ago
    The people who "win" at Pyramid schemes aren't (IMO OFC) winning through luck, they're winning by being the people that set them up. And in the US and many other countries gambling is regulated, so that the games have certain parameters and the risks are known, can't see that being applied to pyramid schemes.

draw_down 6y ago

I don’t agree with the underlying assumption, which is that the stock market was a sober, rational affair until these yahoos showed up. It has always been a casino. Nobody knows, nobody ever has known, why stocks move how they do, or when they will move.

goblin89 6y ago
According to NNT (Black Swan etc.), investing in stocks is in some ways even less predictable than a casino. Your possible maximum win in a casino is precisely limited (if the house did its math), while with a market a black swan can get you up in an unbounded way. However, the market as a whole tends to be stable, so that one can invest in say index funds for modest but reliable long-term growth. I might be off, but as far as I can tell the question now is whether even that stability is becoming past tense now.
- draw_down 6y ago
  Good point, casinos operate in the ludic realm, where probability calculations can actually mean something. Your second paragraph is just illustrating the point though- yes there are times when it can appear to make sense, just like you can get a "hot hand" in craps. They're two instances of the same thing. It's illusory, nobody ever knows what is going to happen, ever.

truculent 6y ago

Nice story, although something about the clean distinction of the third type of bubble seems imperfect to me. The difference being that in the other two types of bubble there are still many people (not a majority) who are trading on the predicted behaviour of other traders (rather than a prediction about the future being the same or better).

cheesecracker 6y ago

Ok, so it's fun and games, but how much money exactly is being thrown at that game?

zacherates 6y ago
From the Hertz bankruptcy motion (via Money Stuff/Matt Levine): "246,775,008 shares of common stock" or another way "Hertz could potentially offer up to and including an aggregate of $1.0 billion of common stock" ... so, a lot.

curation 6y ago

The retail investors are fully aware of what the author describes and are pushing their conclusion forward: Nothing matters. Being trapped in binaries we strangle. This is a cultural disavowel landing on an economic register. Dragging white supremacy into the public realm is another such motion.

bronzeage 6y ago

Uber / Lyft / Snap were never cash flow positive, and don't have any clear way of reaching that, while User is burning 2 billions a quarter and has only two more quarters to go bust. There are tons of VC unicorns which are burning investors money on unsustainable business models, like food delivery apps that subsidize your orders. WeWork has no chance of avoiding bankrupcy. The irrational exuberence has been here for quite some time already, and out of everything, a bankrupt company which at least used to have a working business model and existed for 100 years is not nearly the most insane investments going on here. (The insanity is buying it before the bankruptcy restructuring, tho).

wpietri 6y ago
Agreed. The thing that seems especially bonkers to me is that the theory of Uber is that you could turn a low-margin business into a high-margin business by a) shifting most of your risk (opex, capex, labor costs) to low wage workers too desperate to negotiate a fair deal, and b) spending massively to get Google-ish monopoly pricing over a key activity. Point A is looking more and more false. Uber took on a lot of costs; instead of running a very lean operation, they spent like a tech company. They're having a hard time weathering this downturn. Governments are catching up to them on their labor-isn't-labor regulatory arbitrage, and I expect that come 2021, they'll see national-scale questions about their worker exploitation. Point B is looking even worse. Once they failed to kill Lyft, extracting monopoly rents went out the window. And now a bunch of well-funded organizations with strong brands are coming after their business with autonomous cars. It won't be easy competing with Google on software. It won't be easy competing with GM on cars. And plenty of companies have brands compatible with becoming a preferred transportation provider. E.g., imagine BMW's autonomous car service. Or even worse from Uber's perspective, Costco. That's something like a quarter of American households. It's perfectly plausible to me that Uber will never hit breakeven in terms of total profit exceeding total investment. By 2040, they could be in the same bucket as Groupon: an early darling that still exists but people barely remember.
- flashyfaffe2 6y ago
  Everything being equal,isn't what Amazon did before anyone else? Burning astonishing amount of cash and create a massive monopoly. Prof Galloway, gave very interesting thoughts: https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf

aazaa 6y ago

>... But you know what kind of public companies have zero earnings for years at a time, and where future earnings are so far away that it’s already understood by everyone to be a day-to-day game of chicken, just like this? Biotech companies. And you know what kind of companies are going to be really interesting in the aftermath of Covid? Biotech companies. Sounds sorta like Amazon. It's one giant game of expanding P/E multiple. The bulls say tell me what I'm missing is that Amazon could turn on earnings like flipping a switch. They just don't want to. It's more efficient if AMZN holds on to the money. My response is that it's always been that way with this company. Same story in 1999. Also sounds sorta like Microsoft. Sounds definitely like Tesla. Sounds, in fact, like way too many companies. There's a bubble here of biblical proportions. The Fed has suspended the inevitable in the name of economic survival. But the signs were everywhere pre-COVID. Now, no severe decline in stocks will be tolerated. It's Powell Puts as far as the eye can see. The returns will be jaw-dropping. The valuations will be lunar. Still, it would be a terrible thing to be riding in this particular shopping cart when it smacks into the wall.

xuki 6y ago
I can see how you view Amazon that way but Microsoft is a money printing machine with real profit, and its PE is not unreasonable.
RhodesianHunter 6y ago
> It's more efficient if AMZN holds on to the money. My response is that it's always been that way with this company. Same story in 1999. And they've grown revenue 30% year over year. This is not a great example.

anonu 6y ago

Have you guys come across Dave Portnoy @stoolpresidente on Twitter. This guy embodies everything that is wrong with the retail/millennial/wsb crowd. But remember that the markets are a beautiful thing. There are millions of inputs into the pricing function. If the price is wrong, then arbitrageurs will come in and bring it in line with where it "should be". There is nothing wrong with that.

otterley 6y ago
Mr. Portnoy is discussed in the article.
FartyMcFarter 6y ago
Isn't it a persona?
soared 6y ago
Dave portnoy is not a millennial, FYI. He’s like 45. But he owns barstool sports and literally exists to drive pageviews. There are no sports so he turned to sticks, just like it’s described in the article. Unlike wsb he’s worth tens of millions so losing $1MM is less significant than it would be for most. But yeah, awful for the stock market undoubtedly.
- asdff 6y ago
  Is he really any worse than Cramer taking advantage of retired geriatrics with declining faculties on daytime cnbc?
purple_ferret 6y ago
Wow, what happened to this guy? I thought he reviewed pizza joints. Seems like he's turned to pump and dump schemes, which is pretty low.
- ac29 6y ago
  He started Barstool sports, a company now worth ~$0.5B. He's personally worth tens of millions as a result of this. He does a little more than eat pizza on the internet these days (though still does that too).

jiofih 6y ago

Do Robinhood and WSB even show up at all in the charts? Institutional investors own 99% of stocks, you cannot really move a high volume stock with these individual traders.

anonyxyz 6y ago
The HGTs and algorithmic traders react to retail trades, so in that sense retail investors can contribute to moving the market.
naveen99 6y ago
Retail owns 30% according to top google results.

cs702 6y ago

"The YOLO Stock Market" The vast majority of equity investors -- including quite a few professional portfolio managers -- have only a faintly vague understanding of how bankruptcy works. Many couldn’t tell you the difference between a Chapter 7 and a Chapter 11 filing in the US Bankruptcy Code without first looking it up on Google. But details such as "who gets what in a bankruptcy" are irrelevant to people who are trying to "beat the gun," as J. M. Keynes described it nine decades ago: > It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it 'for keeps', but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence. > Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is 'to beat the gun', as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow. > This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional;—it can be played by professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated. > Or, to change the metaphor slightly, professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees. Source: https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmployment.pdf https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmpl...

rexreed 6y ago

Side topic: the rental car industry is a dinosaur walking. Just like Netflix and video-on-demand put Blockbuster out of business, Uber and rideshare companies are slowly putting the kabosh on rental car business. I can't remember the last time I really needed to rent a car. Maybe for the random site-seeing roadtrip. But vacationers aren't rental company's bread and butter: it's business travelers. And business travelers are seeing much more convenience from rideshare than from rentals. The hassle of renting a car, parking, tolls, gas, dealing with insurance and liability, and just the shenanigans of rental car companies is not worth the hassle. It took a solid decade before the impact of video on demand was felt on Blockbuster, but it was inevitable. Just how COVID is bringing the water out of shore on the low tide, all it is doing is exposing already weak companies. Those that fail can't simply blame COVID, altho it's certainly a contributor. For some, the writing was already on the wall. In 10 years we'll be writing the post-mortem on the rental car industry.

adrianmonk 6y ago
Last time I rented a car it was because the hotel and airport were on opposite sides of a big city. Renting a car for 3 days was cheaper than two 40-mile Uber/Lyft trips. Because airports are often located on the edge of a city, this is a pretty common situation. Convenience matters, but so does cost, so I expect rental car companies will continue to get this sort of business.
kyriakos 6y ago
Or with self-driving cars the rental industry will become the next uber since they won't need a driver. Everyone would just lease a "car privilege" from a rental company which (or others) would be picking you up whenever you need it following your patterns a fleet of cars will be shared among more people. This would reduce pollution, waste and traffic in large cities.
- bigtunacan 6y ago
  I don't disagree with that model, but I don't think that is "the next Uber". That is just Uber in a few years. It is common knowledge that self-driving cars are Uber's long game. They are trying their hardest to get there so they can eliminate their biggest cost; paying drivers.

tomgp 6y ago

I’d argue the third ‘new’ bubble type is actually the platonic ideal underlying the first two types.

LatteLazy 6y ago

The author has missed a few important points to paint a picture that ultimately misses reality. First, Hertz isn't worthless because it has restructured. Even if hertz is ultimately wound up because its debts exceed its assets (something very very unlikely historically) its shares today are worth something because there is still the chance thelat may not happen (including the chance the company will be saved by a bailout) Second, the traders he refers to are speculators. Speculators fulfill a role that is a well understood and widely agreed to be important for both liquidity and price discovery. Third, if other people are bidding price up (or down), who cares? You're not a share holder in a "worthless" company, so let them run their casino in that little corner of the market and you can invest in the other 99.99%. Ge should also Google what a "dead cat bounce" is to better understand crashed stocks' behavior...

atombender 6y ago
> First, Hertz isn't worthless because it has restructured. Hertz has not restructured yet. They filed for Chapter 11 bankruptcy on May 22.
- LatteLazy 6y ago
  True, but chapter 11 means they will restructure and that’s the value you’re buying...
  - aembleton 6y ago
    What stops their creditors taking the company? They don't have enough to pay them off.
    - sgerenser 6y ago
      An extra billion dollars from a stock sale might go a long way in paying off creditors.
    - LatteLazy 6y ago
      Well first, what makes you so sure they don’t have more assets than liabilities? The filed for chapter 11 (restructuring) not chapter 7 (liquidation). And second, even if their liabilities exceed their (physical) assets, creditors are very reluctant to actually liquidate larger businesses. I don’t know exactly why but just looking historically, creditors tend to be much more willing to take a haircut and keep at least parts of the business operational than to demand their full pound of flesh...

roland35 6y ago

Day trading does not appeal to me at all because it feels exactly like gambling, but I can see the appeal and I hear more of my friends talking about it. I can see the alure, but I do believe in the end the "Boglehead" strategy is the best long term low stress investment strategy (low expense mutual funds in tax advantaged accounts). This type of situation with Hertz definitely feels like a unique combination of events (corona, gig economy, etc) but I won't be surprised if we have more and more weird stock situations occur as weird internet culture leaks into the real world...

donatj 6y ago

> Hertz was in trouble anyway; it’s carrying around a ton of debt to pay for a fleet of cars that no one wants to drive, because we have Uber now. Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving. I still however rent a car on vacation. I like the freedom to just be like “I wonder where that road ends up” and end up exploring 50 miles out of town.

s09dfhks 6y ago
>Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving. More or less yea (assuming wherever we're traveling has uber)
- donatj 6y ago
  It seems like that would very quickly become much more expensive than just renting a car.
  - capableweb 6y ago
    Depends. If you're going somewhere for just a weekend and you don't go around outside cities all the time, it's probably cheaper to just use Uber for the 3-6 times you need it, rather than having to rent a car. If it's a very different country it's probably easier to go with taxis/uber rather than driving in an unfamiliar environment with regulations and driving culture you don't know 100% as well.
  - joshcain 6y ago
    Parking is really expensive in a lot of cities. Easily $40/night+ if you're leaving a car at your hotel, plus you have to pay to park while sightseeing/etc.

burlesona 6y ago

This is not really surprising to me. When you have a prolonged zero interest rate policy, and “there is no alternative” then the only thing left to do if you want to make money on your money is gamble. To me the Robin Hood traders are not creating this phenomenon, rather they are just making it plainly visible as it goes mainstream.

phkahler 6y ago
Low interest rates are destroying everything.

ncrmro 6y ago

WSB being compared to Jackass really sums up that whole group.

baby 6y ago

BTW I've been trying to buy a car from Hertz.com, and it's been pretty much impossible. Whenever I call they tell me weird things like "we lost the key for this car" or "we'll call you back". They never call back. They don't answer to my emails either. This is weird.

RhodesianHunter 6y ago
Why would they try to sell you their inventory if they think there's a chance the company will be saved as discussed in the article?

rsp1984 6y ago

And here we are, today making fun of all those supposed jackasses exchanging cash for - such obviously worthless! - things such as Hertz stock, and tomorrow going back to our jobs that pay us in - so obviously valuable! - fiat money, some of which we may "invest in" such obviously valuable things as Bitcoin... Go figure!

mam2 6y ago
Whats even your point

jimmysong 6y ago

I've seen this happen to a number of bankrupt companies, this just happens to be a big one. The expectation is that the stock go to zero, but somehow it bounces upwards. Happened with GM back in 2008-2009, happens to a lot of other stocks that are in bankruptcy. The stock becomes unmoored from the actual company and trades like a weird collectible.

drited 6y ago

Cost of borrow for hertz shares reached over 140 percent last week. Some of the purchasing could well have been driven by hedge funds which were short but had to buy stock to exit their positions after available shares to borrow dried up and their brokers forced them out of the position.

sytelus 6y ago

One of the key why stocks of bankrupt companies like Hertz go up 500% in matter of days is so called “river of money”. Globally, there is massive amount of cash sloshing around through people’s retirement accounts which ends up at places like Robinhood, Blackrock etc. When you sign up for 401K, you are putting money in this river where these gamblers take a dip. The bottom line is that no one is playing with their own money and so gambling, short term profit jacking etc are full on. The principles of value investing, looking at future long term returns is all down the drain. Even the many big tech boards are almost exclusively run by investor suits looking to squeeze out money in short term and walk away. If the situation continues, I think stock market isn’t going to be viable channel for public investment in long run.

ac29 6y ago
> no one is playing with their own money Who's money is it then?
- ric2b 6y ago
  The people investing in the funds.