14 ms·

"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

by 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.”
- tenpies 6y ago
  We are going to witness the first Initial Bankruptcy Offering in market history.
  - smiley1437 6y ago
    Holy I nearly choked at this comment
- codeulike 6y ago
  “I guess they’re trying to catch whatever the opposite of a falling knife is.” profound
  - bibinou 6y ago
    Ethan Hunt jumping on a plane taking off: https://www.youtube.com/watch?v=elpUGB9Ap1Y https://www.youtube.com/watch?v=elpUGB9Ap1Y
    - codeulike 6y ago
      Gromit placing rail tracks https://www.youtube.com/watch?v=fwJHNw9jU_U https://www.youtube.com/watch?v=fwJHNw9jU_U edit: and here's the full scene, greatest chase scene in cinematic history https://www.youtube.com/watch?v=jrmZIgVoQw4 https://www.youtube.com/watch?v=jrmZIgVoQw4
  - RhysU 6y ago
    Levine quipped that to be a soaring spoon.
  - selimthegrim 6y ago
    Crouching tiger?
  - rowawey 6y ago
    s/knife/sword of Damocles/
  - 6y ago
qeternity 6y ago
> There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses This is not unique to millennials. Go back to every retail-participated bubble and you will find this condescension (and deservedly so imo). The stories of strippers in Vegas buying multiple McMansions in 2006 come to mind. You points about relative return measures (ROI) having large base effect issues miss the point of what's going on: it's not the magnitude of the swings which are notable, but rather the circumstances around which they're occurring. Enron was a massively complex business, and the true value of its assets was thus a massively complex question. HTZ does not enjoy this same conundrum. Other financially impaired but high name recognition names have had similar behavior (AAL, DAL, to name a few). Robinhood have lowered the bar to trading, that children are now "playing" the markets when they get bored of Minecraft and Fortnite (this is not hyperbole). And then you have one strata above who are likely the real problem and have been active in every bubble in recent memory. Financially unsophisticated adults have indoctrinated with "buy-and-hold" from the likes of Warren Buffett without understanding the edge cases likes bankruptcies (incidentally, Buffett sold all his airlines holdings which are now a retail favorite). Simply put: people don't understand what they're doing and that's what makes this so amazing. They think "people aren't going to stop renting cars" or "people aren't going to stop flying" and so they buy the stock, cocksure that over the long-run they will be rewarded. The future outcomes of HTZ common shares is pretty certain, and not at all consistent with current retail behaviors.
- Aeolun 6y ago
  > The future outcomes of HTZ common shares is pretty certain But say they get to the point where their balance is positive because they sold a lot of stock, wouldn’t the price of that stock go back up to the original $20 (or maybe $10, since they basically doubled the amount of shares).
  - nogabebop23 6y ago
    you're talking on a real abstract level, but what do you companies do with the money they raise on th epublic market? I see 3 broad choices: (1) return it to other investors? That would make this essentially a ponzi scheme. (2) Fund expansion in their business? In this case that would likely accelerate the rate at which they turn money into smoke. (3) Buy time to either restructure or significantly change their business model? THis what I think the new investors are betting on (the rational ones at least) but it seems like a real, real long shot, so even the most analytical is attemping to pick the trifecta.
jhrmnn 6y ago
Stock price changes should be reported on a logarithmic scale, something like a decibel, perhaps finer, a centibel, cB. You go down 90%, that’s 10x less, -100 cB. You go up 900%, that’s 10x more, +100 cB. A 5% decrease is 1.0526x less, -2.2 cB, a 5% increase is 1.05x more, +2.1 cB. The fact that 5% is roughly 2 cB is because you need 100/2 = 50 of 5% increases (decreases) to give you roughly a 10x increase (decrease)
- optimiz3 6y ago
  It's known as lognormal returns in quantitative circles.
chrisseaton 6y ago
> Hertz’s stock, which is literally worthless, starts to go up. Clearly wasn't literally worthless, then was it. 'I didn't think it'd go up' does not mean worthless. You'd have made some money there if you had bought at the end of May! If you don't want your 'worthless' Hertz stock then you can gift it to me.
- _jal 6y ago
  I love it when people start explaining why, in this case, the price is wrong.
  - pfortuny 6y ago
    Exactly: so much for “the fair price is what the market says”. But then: IN THIS CASE, we know better.
- Centaur1989 6y ago
  Let's think in first principles here, shall we? Stocks (or equity) is a fractional stake in current and future earnings of the company. We know if a company declares bankruptcy, its liabilities have exceeded assets and equity is down to zero or negative. Debt holders have higher priority stake in the company, so the first thing that happens in ~100% bankruptcy filings is debt holders take ownership of all assets. Current equity is almost always wiped out. After restructuring, debt holders may issue new equity, which may be worth something - but is completely different from what is currently circulating right now. No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value - that's literally the definition of a bubble. One can easily make money trading a bubble asset, but should not conflate returns here with asset's ability to generate future income.
  - chrisseaton 6y ago
    > No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value The only intrinsic monetary value of a thing is what someone else will give you for it (or what people give you for owning it, like a dividend or rent or whatever.) It doesn't matter why they'll give you that for it, only that they will. Otherwise how do you explain the value of for example a fine art painting? What do you think their ordained true intrinsic value is? Are all paintings permanently in a bubble? What are Hertz stocks worth? About 2.83, because that's what I can sell them for. If you owned a hundred thousand Hertz stocks right now would you just throw the certificate away because they're worthless?
deleted 6y ago
[deleted]

by ak39 6y ago

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.”

tenpies 6y ago
We are going to witness the first Initial Bankruptcy Offering in market history.
- smiley1437 6y ago
  Holy I nearly choked at this comment
codeulike 6y ago
“I guess they’re trying to catch whatever the opposite of a falling knife is.” profound
- bibinou 6y ago
  Ethan Hunt jumping on a plane taking off: https://www.youtube.com/watch?v=elpUGB9Ap1Y https://www.youtube.com/watch?v=elpUGB9Ap1Y
  - codeulike 6y ago
    Gromit placing rail tracks https://www.youtube.com/watch?v=fwJHNw9jU_U https://www.youtube.com/watch?v=fwJHNw9jU_U edit: and here's the full scene, greatest chase scene in cinematic history https://www.youtube.com/watch?v=jrmZIgVoQw4 https://www.youtube.com/watch?v=jrmZIgVoQw4
- RhysU 6y ago
  Levine quipped that to be a soaring spoon.
- selimthegrim 6y ago
  Crouching tiger?
- rowawey 6y ago
  s/knife/sword of Damocles/
- 6y ago

qeternity 6y ago

> There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses This is not unique to millennials. Go back to every retail-participated bubble and you will find this condescension (and deservedly so imo). The stories of strippers in Vegas buying multiple McMansions in 2006 come to mind. You points about relative return measures (ROI) having large base effect issues miss the point of what's going on: it's not the magnitude of the swings which are notable, but rather the circumstances around which they're occurring. Enron was a massively complex business, and the true value of its assets was thus a massively complex question. HTZ does not enjoy this same conundrum. Other financially impaired but high name recognition names have had similar behavior (AAL, DAL, to name a few). Robinhood have lowered the bar to trading, that children are now "playing" the markets when they get bored of Minecraft and Fortnite (this is not hyperbole). And then you have one strata above who are likely the real problem and have been active in every bubble in recent memory. Financially unsophisticated adults have indoctrinated with "buy-and-hold" from the likes of Warren Buffett without understanding the edge cases likes bankruptcies (incidentally, Buffett sold all his airlines holdings which are now a retail favorite). Simply put: people don't understand what they're doing and that's what makes this so amazing. They think "people aren't going to stop renting cars" or "people aren't going to stop flying" and so they buy the stock, cocksure that over the long-run they will be rewarded. The future outcomes of HTZ common shares is pretty certain, and not at all consistent with current retail behaviors.

Aeolun 6y ago
> The future outcomes of HTZ common shares is pretty certain But say they get to the point where their balance is positive because they sold a lot of stock, wouldn’t the price of that stock go back up to the original $20 (or maybe $10, since they basically doubled the amount of shares).
- nogabebop23 6y ago
  you're talking on a real abstract level, but what do you companies do with the money they raise on th epublic market? I see 3 broad choices: (1) return it to other investors? That would make this essentially a ponzi scheme. (2) Fund expansion in their business? In this case that would likely accelerate the rate at which they turn money into smoke. (3) Buy time to either restructure or significantly change their business model? THis what I think the new investors are betting on (the rational ones at least) but it seems like a real, real long shot, so even the most analytical is attemping to pick the trifecta.

jhrmnn 6y ago

Stock price changes should be reported on a logarithmic scale, something like a decibel, perhaps finer, a centibel, cB. You go down 90%, that’s 10x less, -100 cB. You go up 900%, that’s 10x more, +100 cB. A 5% decrease is 1.0526x less, -2.2 cB, a 5% increase is 1.05x more, +2.1 cB. The fact that 5% is roughly 2 cB is because you need 100/2 = 50 of 5% increases (decreases) to give you roughly a 10x increase (decrease)

optimiz3 6y ago
It's known as lognormal returns in quantitative circles.

chrisseaton 6y ago

> Hertz’s stock, which is literally worthless, starts to go up. Clearly wasn't literally worthless, then was it. 'I didn't think it'd go up' does not mean worthless. You'd have made some money there if you had bought at the end of May! If you don't want your 'worthless' Hertz stock then you can gift it to me.

_jal 6y ago
I love it when people start explaining why, in this case, the price is wrong.
- pfortuny 6y ago
  Exactly: so much for “the fair price is what the market says”. But then: IN THIS CASE, we know better.
Centaur1989 6y ago
Let's think in first principles here, shall we? Stocks (or equity) is a fractional stake in current and future earnings of the company. We know if a company declares bankruptcy, its liabilities have exceeded assets and equity is down to zero or negative. Debt holders have higher priority stake in the company, so the first thing that happens in ~100% bankruptcy filings is debt holders take ownership of all assets. Current equity is almost always wiped out. After restructuring, debt holders may issue new equity, which may be worth something - but is completely different from what is currently circulating right now. No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value - that's literally the definition of a bubble. One can easily make money trading a bubble asset, but should not conflate returns here with asset's ability to generate future income.
- chrisseaton 6y ago
  > No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value The only intrinsic monetary value of a thing is what someone else will give you for it (or what people give you for owning it, like a dividend or rent or whatever.) It doesn't matter why they'll give you that for it, only that they will. Otherwise how do you explain the value of for example a fine art painting? What do you think their ordained true intrinsic value is? Are all paintings permanently in a bubble? What are Hertz stocks worth? About 2.83, because that's what I can sell them for. If you owned a hundred thousand Hertz stocks right now would you just throw the certificate away because they're worthless?

deleted 6y ago

[deleted]