The deliI think there are two interesting questions about David Einhorn's least favorite deli: Why was it worth so much on Thursday, and why was it worth so much on Friday? Those strike me as very different questions. So. On Thursday, Einhorn's Greenlight Capital published a quarterly investor letter that mentioned Hometown International Inc., which is a deli, as an example of the insanity of the current stock market: Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due to COVID from March to September. HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing. Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious. From a traditional perspective, the market is fractured and possibly in the process of breaking completely.
Here's Hometown's annual report on Form 10-K for the 2020 fiscal year, which really is a majestic thing. It is, as Einhorn says, a single deli in Paulsboro, New Jersey. It "features 'home-style' sandwiches, food items, and groceries in a casual and friendly atmosphere." It managed to have a net loss of $631,356 on total sales of $13,976. It spent $10,124 on "food, beverage and supplies" and, somehow, $126 on labor, which, at New Jersey's then-current minimum wage for small employers, would have paid for someone to work the register for approximately 12 hours and 15 minutes over the entirety of 2020. Due to Covid-19, Hometown was closed from March 23, 2020, until it "was re-opened on September 8, 2020, with a 'soft opening' to a limited audience, prior to its 'Grand Re-Opening' to the public on September 22, 2020," according to the 10-K. So you only needed someone to work the register for like half a year. Still? On the other hand, Hometown spent $170,767 on "professional fees," which is presumably the absolute bare-bones cost of paying lawyers and accountants for the upkeep of a public company, which, again, Hometown is, despite also being a single deli. It also spent $320,000 on "consulting — related parties." Here's the explanation of this expense: Effective as of May 1, 2020, we entered into a Consulting Agreement with Tryon Capital Ventures LLC, a North Carolina limited liability company ("Tryon") which is 50% owned by the father of Peter L. Coker, Jr., our Chairman of the Board. Pursuant to this agreement, Tryon was engaged as a consultant to the Company, to, among other things, support in the research, development, and analysis of product, financial and strategic matters. The term of the Tryon Consulting Agreement is one year; provided, however, that each party has the right to terminate the agreement upon 30 days' prior written notice to the other. Pursuant to the agreement, Tryon shall receive $15,000 per month during the term of the agreement, in addition to reimbursement of expenses approved in advance by the Company (See Note 8). Effective as of May 1, 2020, we also entered into a Consulting Agreement with VCH Limited, a company formed under the laws of Macau ("VCH") which owns in excess of 10% of our common stock. Pursuant to this agreement, VCH was engaged as a consultant to the Company, to, among other things, create and build a presence with high net worth and institutional investors. The term of the agreement is one year; provided, however, that each party has the right to terminate the agreement upon 30 days' prior written notice to the other. Pursuant to the agreement, VCH shall receive $25,000 per month during the term of the agreement, in addition to reimbursement of expenses approved in advance by the Company (See Note 8).
Where does it get the money to pay all these fees, besides selling $13,976 worth of sandwiches? "On April 14, 2020, the Company consummated private offers and sales of an aggregate of 2,500,000 shares of common stock to three accredited investors for gross cash proceeds of $2,500,000." And I guess it pays it back to them in consulting fees?[1] If you took all of this at face value, honestly it would be an amazing and fun story? There's a deli in New Jersey, run by the local high school's wrestling coach, and he prides himself on the home-style sandwiches and friendly atmosphere of his deli. He dreams big, for his deli. He decides "you know what I should do is go public and expand internationally," so he pays accountants and lawyers a lot of money to take his company public. He attracts some Asia-based investors (Macau-based VCH, but also Peter Coker Jr., Hometown's chairman, who runs "South Shore Holdings Limited, a Hong Kong listed company"), and they put up a couple million dollars, and he also hires them to advise him on (1) "the research, development, and analysis of product, financial and strategic matters," sure, and also (2) how to "create and build a presence with high net worth and institutional investors," sure, sure, sure, sure, absolutely, sure. I would watch a movie about this story. You could imagine a cheerful heartwarming version in which the advisers come through and he gets institutional investment and expands internationally and delights the entire world with his home-style sandwiches. But I would also be perfectly happy with a gritty seedy version in which the advisers just take his money and he keeps on doing what he's been doing, selling sandwiches, bringing in $13,976 a year, paying one of his former wrestlers to watch the register for him a few hours a year while he steps away to go to board meetings, dreaming of international success without ever getting any closer to it. But I am not sure you should take it at face value. I don't actually know what you should make of it. Dan Mangan at CNBC points out that the lawyer who took Hometown public in 2015 later got in trouble with the U.S. Securities and Exchange Commission "for running a fraudulent shell factory scheme through which sham companies were taken public and sold for a profit." If you are a company — particularly a Chinese company — that would like to be publicly traded in the U.S., but that would prefer to avoid the scrutiny that comes with an initial public offering, doing a "reverse merger" — acquiring the empty shell of a near-defunct but public U.S. company — is often an easy way to do it.[2] A deli with $13,976 of sales, but with careful and pristine SEC filings, might be rather valuable to a certain sort of Macau- or Hong Kong-based investor. Not $100 million worth of valuable. This is not a fully satisfying explanation or anything. Anyway, as Einhorn says, the stock got as high as $14.50 on Feb. 8, for a market cap of $113 million. It closed last Thursday at $13.50, a market cap of about $105 million. These numbers are very high for a company that is, again, a single deli. But you shouldn't take them too seriously. Over the 12 months ending last Thursday, Hometown traded an average of 331 shares per day, for an average value traded of about $3,900 per day. It would sometimes go for more than a week without any trades. This is a deli. Most of its stock seems to be held by a small group of people, and it trades in the over-the-counter market. It just seems unlikely that very many small investors were "sucked into" this situation. If they were, they put in a few hundred bucks. But then Einhorn published his letter, and Hometown became the laughingstock of financial media last Friday. And here is what happened: - Volume exploded, from 800 shares on Thursday to 42,762 on Friday. By Friday evening, Hometown had traded a total of about 70,000 shares in all of 2021; more than 60% of that trading happened on Friday.
- The stock was down by 3.1%. It closed at $12.99, for a market capitalization of $101.3 million.
Last Wednesday, when there was a single trade of 200 shares and Hometown closed at $13.90, you might have asked incredulously, "who's paying $13.90 per share for this deli," but the answer would have been "exactly one person, for reasons of their own." But on Friday there were hundreds of trades, and almost half a million dollars' worth of stock changed hands. And the stock barely budged. People were like "yes, $100 million deli, absolutely, I want to buy that." Hometown went from a thinly traded pink-sheet deli that nobody had heard of, to a company that everyone had heard of exclusively because it was a poster child for market excess, and … people … bought … it? Like, a whole new class of investors was introduced to Hometown International specifically by a hedge-fund letter saying "small investors who get sucked into these situations are likely to be harmed eventually," and they looked at it and decided they wanted to be harmed. "Yes, step on my neck, Hometown International."[3] David Einhorn warned people not to invest in Hometown International, even though it had never occurred to them to invest in Hometown International, but once they were warned not to they absolutely did. I can't explain that any more than I can explain what was happening before Einhorn's letter, but my guess is that the explanations are quite different. Before Thursday, this was a small, lightly traded, closely held company; presumably its handful of big holders wanted it to have a high valuation, and it was easy enough — by trading a few hundred shares — to make that happen. On Friday, it was a meme stock. A small, weird, over-the-counter meme stock, one that you can't buy on Robinhood or discuss on r/wallstreetbets, but still meme-ish. You buy the deli because it's funny, and because you think other people will find it funny and buy it. You buy the deli because the thing that makes stocks — or Dogecoin, or NFTs — valuable, in 2021, is attention. Even bad attention. When David Einhorn wrote about Hometown International on Thursday, it was absolutely not a good example of 2021 meme-stock wildness. It had a comically high price, but on almost no volume; it was weird, but it was not weird in a "why is everyone buying this stock" way. After he wrote about it, sure, now it's a meme stock. As of 11:30 a.m. today it was up about 3.8%. HertzThat said, you should never listen to me and I know nothing. In general, but in particular about meme stocks. Here is Sujeet Indap: Maybe the Robinhood gang was on to something. Last summer, experts scoffed when Hertz, already under bankruptcy protection, saw its publicly traded shares soar to a market value of as much as $800m, spurred by buying by retail traders active on social media. The company's bonds then were trading for dimes on the dollar and the conventional view was that equity investors would get wiped out in the Hertz reorganisation. Ten months later, shares of the car rental company have become one of the hottest plays for hedge funds wizards. A fully fledged Chapter 11 bidding war for Hertz broke out last week capturing the hype around a post-pandemic US economy as well as the ebullience for risk capital. … Most intriguing, this latest offer pays off all creditors in full and in cash while allowing current shareholders, once left for dead, to buy into the new Hertz.
It is rare, but not unheard of, for a company to go into bankruptcy and then come out of it with some value for existing shareholders. One way for this to happen is if the company runs into serious but short-lived trouble: Its assets become worth less than its debts, it runs out of cash, and no one wants to give it any more cash because it has a negative net worth. It files for bankruptcy. And then, as the bankruptcy drags on, the trouble clears up, the assets become worth more than the debt again, it's easy to finance, the debt is worth 100 cents on the dollar and there's residual value for the equity. The equity might get wiped out anyway — the bankruptcy process has a life of its own, and the creditors will maneuver to capture the residual value — but it might not; if the shares have value then in theory the shareholders should be able to capture it. Hertz Global Holdings Inc. filed for bankruptcy last May, in the depths of the global pandemic, in large part because it got, effectively, a margin call on its fleet of cars. The value of used cars collapsed last spring, the lenders who financed Hertz's cars had the right to demand more collateral, they did, Hertz couldn't come up with the money, so it filed for bankruptcy. But then business slowly started recovering, and used-car prices recovered strongly and more or less immediately. And now there is a bidding war for the company. Turns out Hertz was solvent, the people who bought it on Robinhood after it filed for bankruptcy were right, and the people who made fun of them — very much including me — were wrong. I mean, sort of. The stock is way down from where it was last June, when it was a bankrupt meme stock; its market capitalization now is about $250 million. Still, it's better than nothing, and it might stay that way. I don't know what that tells you about the most notable and funniest part of the Hertz saga, which is when Hertz briefly tried to do a stock offering — in bankruptcy — to take advantage of all that retail demand. The Securities and Exchange Commission quickly shut this down; it did not give any public statement of its reasons for doing so but I imagine they boiled down to "oh come on." In hindsight, Hertz and its shareholders were … right? The stock had some value, and asking shareholders to chip in to pay off the debt was not crazy; in fact, it's currently one of the proposals — backed by big sophisticated investors — in the bankruptcy case. Corporate accessSometimes the senior managers of public companies meet with their big shareholders. On the one hand, this makes complete sense: The shareholders own the company and the managers work for the shareholders; the shareholders should be able to tell the managers what they think, and the managers should have to explain themselves to the shareholders. On the other hand, it is very awkward: Generally, securities laws try to give all investors a level informational playing field; corporate managers are not supposed to tell big favored shareholders material nonpublic information without disclosing it simultaneously to everyone. There is a theoretical way to split this difference — the managers can meet with the shareholders, but can't tell them anything material and nonpublic — but it is sort of hard to understand how it could work in practice. Why would the shareholders bother, if not to learn something that might be useful in their investing process? You could have a theory — it sometimes goes by the name "mosaic theory" — that the managers don't tell the investors anything material, but they tell them lots of immaterial things that somehow add up to materiality. I'm not sure why that's better. But, anyway, we talk from time to time about how big investors love doing these meetings, how they pay large sums of money to banks specifically to facilitate these meetings, how the banks' research departments are largely in the business of facilitating these meetings, etc. Here is a paper titled "The Benefits of Access: Evidence from Private Meetings with Portfolio Firms," by Marco Becht, Julian Franks and Hannes Wagner. The authors "address these issues using proprietary data from one of the world's 30 largest active asset managers–Aberdeen Standard Investments." Their data set is from just one UK firm, but it's very detailed: Our dataset contains detailed records of the internal day-to-day activities inside the asset management organization for a period of nine years, and includes detailed notes of all contacts and meetings with portfolio firms, votes cast at shareholder meetings, as well as roughly 11 million observations of fund-level stock holdings at daily frequency.
They find that, for an active stock manager, meeting with companies is useful: After meeting with corporate managers, Aberdeen is more likely to make a trading decision, and that trading decision is more likely to be good. The primary finding of this paper is that for this active investor, monitoring and engagement generates insights and information advantages that influence internal analyst recommendations and are used for trading decisions. These trades generate abnormal returns. … Fund managers heavily trade portfolio firms precisely on meeting days, and trading remains elevated for several days; funds that trade around meeting days tend to be those that trade around other events such as internal analyst upgrades or downgrades and shareholder votes. Not all meetings are the same. Meetings with fund managers generate both buy and sell trades, whereas meetings with governance specialists generate largely sell trades.
Yes! Reasonable! It would be very weird if it were otherwise, if Aberdeen regularly met with the managers of its portfolio companies and did not draw any conclusions from those meetings, or if those conclusions did not influence its trading, or if that influence made the trading worse. They are in the business of buying stocks that will go up and selling stocks that will go down; it is their job; they work hard at it; it is a competitive industry; surely a thing that they spend a lot of time on has a purpose, and surely that purpose is to help them pick the right stocks. Fine. So this is not a surprising result, though it reinforces something I argue a lot around here, so I would mention it for that reason alone. But I also want to mention it because it begins with a nice anecdote. Aberdeen was a big investor in Carillion Plc, a construction firm. In 2015, Aberdeen's governance specialist met with the chairman of Carillion's board. Becht, Franks and Wagner have access to Aberdeen's internal notes from all its management meetings. "An extract from the meeting notes leaves little doubt about the specialist's concerns": "The shares have modestly lagged the wider market since the inconclusive approach to Balfour Beatty and forecasts have also drifted. But if the market seems apathetic about Carillion, [the Chairman] was on chipper form. Looking unfeasibly tanned for this time of year, he […] had just returned from Lesotho by way of a break at a spa in Thailand. He had been out in southern Africa as Chairman of [… a] children's charity. [The Chairman] had had a busy time and was justifiably proud of the polo match that the charity had staged, and which had raised over £1m. Meanwhile, he remains "Chairman designate" of […]. He is also Chairman of […] and sits on the board of […]. He is a busy man. Perhaps as a consequence, [his] style would appear to be "light touch". He averred that his predecessor [...] had been "old school" but while he […] was "different … they had similar approaches". It all sounded rather confusing. His main contribution was to have refreshed the board and to have focused on the mentoring of the CEO, with whom he sounds to have an avuncular relationship. About the outlook for Carillion he seemed rather vague – strategically he […] 'had an intuition that there were opportunities in developed and developing economies'. The force of this insight was somewhat diminished by the admission that 'they hadn't really made any progress on that front' (notwithstanding that the CEO received almost a full bonus for that measure of performance in 2014)."
"Two weeks later the internal analyst covering the firm downgraded it, from 'Hold' to 'Sell,'" and Aberdeen funds sold down about a quarter of their Carillion holdings over the course of a week. "The company eventually went into insolvency." Did the chairman tell the Aberdeen governance specialist anything material and nonpublic during this meeting? I think the conventional answer would be no, he did not. He didn't, for instance, say "oh by the way we plan to go into insolvency eventually, watch out." He said some general platitudes about management and strategy; the chairman's "intuition that there were opportunities in developed and developing economies" does not seem like the sort of material news that a company would have to disclose publicly. On the other hand, it is clear that the Aberdeen analyst got useful information out of this meeting. The analyst paid close attention to the discussion of the chairman's spa trip and charity polo match, and got a strong and accurate sell signal from that discussion. Surely the most useful information in the meeting came from the guy's tan. If you describe an executive as "unfeasibly tanned" in a research note, you have definitely decided to sell. Here, that was the right call. Everything (at Credit Suisse) is securities fraudThis is a little lazy but here you go: Credit Suisse Group AG was sued by a small pension fund that alleges the bank misled investors and let "high-risk clients" including Greensill Capital and Archegos Capital Management take on too much leverage, in one of the first lawsuits since the twin debacles. The Michigan pension fund, City of St. Clair Shores Police & Fire Retirement System, filed the suit on Friday in federal court in Manhattan, seeking to represent all shareholders who bought Credit Suisse American depositary receipts between Oct. 29 and March 31. The fund alleges that the bank "concealed material defects in the company's risk policies and procedures and compliance oversight functions and efforts to allow high-risk clients to take on excessive leverage," exposing the bank to "billions of dollars in losses."
Everything, I frequently say, is securities fraud: If a public company does a bad thing, or a bad thing happens to it, shareholders will sue it alleging that it didn't sufficiently warn them about the bad thing. Credit Suisse had two high-profile errors more or less back to back, so that is, like, double securities fraud. Here is the complaint: During the Class Period, defendants issued materially false and misleading statements regarding the Company's business metrics and financial prospects. Specifically, defendants concealed material defects in the Company's risk policies and procedures and compliance oversight functions and efforts to allow high-risk clients to take on excessive leverage, including Greensill Capital ("Greensill") and Archegos Capital Management ("Archegos"), exposing the Company to billions of dollars in losses. Not only did defendants conceal these operational landmines from Credit Suisse investors, which caused the price of Credit Suisse securities to be artificially inflated, but they also undertook actions indicating that Credit Suisse securities were substantially undervalued, such as a massive stock buy-back program worth 1.5 billion Swiss francs worth (equivalent to $1.6 billion). As a result of defendants' false statements, Credit Suisse ADRs traded at artificially inflated prices, reaching a high of $14.95 per ADR by February 2021. Following a series of corporate scandals which have revealed grave deficiencies in Credit Suisse's risk and compliance activities, the price of Credit Suisse ADRs plummeted, reaching a low of just $10.60 per ADR by March 31, 2021.
Blech. Yes, absolutely, Credit Suisse did two bad things. It ran some funds that invested in Greensill Capital notes and lost money when Greensill blew up, and it wrote some swaps to Archegos Capital Management that lost money when Archegos blew up. Credit Suisse's shareholders wish it hadn't done that, and Credit Suisse's managers wish it hadn't done that. Still it is strange to characterize this as primarily securities fraud against the shareholders, to think that the problem here was lying. The problem is not that Credit Suisse went around telling shareholders "we try not to lose money on dumb stuff" but had a secret undisclosed nefarious plan to lose money on dumb stuff. The problem is that Credit Suisse tried not to lose money on dumb stuff and failed. On the other hand, if I invested in one of those Credit Suisse Greensill funds, thinking that I was financing short-dated secured loans against accounts receivable, and then found out that I was financing long-term unsecured loans against " prospective receivables," I'd be annoyed. I might even feel defrauded, depending on what exactly the disclosure for those funds looked like. I don't know how I'd get Archegos into my complaint though. Everything is seating chartsI love it: HSBC chief executive Noel Quinn has abolished the entire executive floor of its Canary Wharf skyscraper in east London as the bank becomes the latest to drive through sweeping changes to post-pandemic working practices. Top managers have been booted out of their 42nd-floor private offices, which have been turned into client meeting rooms and collaborative spaces, Quinn told the Financial Times. Executives — the CEO included — now hot desk on an open-plan floor two storeys below. "Our offices were empty half the time because we were travelling around the world. That was a waste of real estate," he said. "If I'm asking our colleagues to change the way that they're working, then it's only right that we change the way we're working. "We don't have a designated desk. You turn up and grab one in the morning," he added. "I won't be in the office five days a week. I think it's unnecessary . . . It's the new reality of life."
I mean, don't get me wrong, I hate it, but I suppose it is the new reality of life, and he's right that if you're going to make all the regular workers hunt for a new desk every day then it's only fair to make the CEO do it too. Ideally the result would be that the CEO does it for a month and says "you know what, sure I never used my office five days a week, but when I did it was nice to have family photos and my own comfy chair, so I'm scrapping this hot-desk thing and giving everyone an office, no matter the cost." That is unlikely. But the alternative is that you keep the hot desks, but at least everyone suffers equally. Well, not quite equally. If you're some second-year analyst and you show up and pick your favorite hot desk and get down to crunching a spreadsheet, and you look up and the CEO is sitting next to you, that's a nice tourism experience for him. "Oh look a young person," he thinks, and he has some pleasant chat about what group you work in and how you're liking it. For the analyst, though, it is terrifying: You have to look serious and work hard the whole day and hope that the CEO doesn't glance over, notice that you've improperly formatted a pitch book and fire you on the spot. Hot desking seems unpleasant enough without the risk that one day you might accidentally sit next to the CEO. Things happenHarassment Allegations and Fear Haunt European Investment Bank. Bond Giant Pimco Attempts to Change Its Culture. Stock Shorts Collapse as No Hedge Fund Wants ' Head Ripped Off.' GameStop CEO George Sherman to Step Down by July 31. 'Roaring Kitty' Boosts GameStop Bet After Exercising Options. Hedge Funds Are Ready to Get Out of New York and Move to Florida. SPAC Wipeout Is Punishing Followers of Chamath Palihapitiya. "In recent months, Andreessen Horowitz has invested in several startups every week, a blistering pace bested only by hedge fund Tiger Global Management." China's Ant explores ways for Jack Ma to exit. Citigroup Refocuses Asia Strategy as It Pulls Back From Consumer Banking. Banks Face Growing Pressure to Phase Out Fossil-Fuel Lending. Shareholder-Advisory Firms Take Opposing Views on Racial Audits. Neuberger Berman to Disclose Proxy Votes for 60-Plus Companies Ahead of Time. WeWork's New Stock-Listing Plan Has Echoes of Its Past. Investment Manager Charged for Multimillion-Dollar "PPP" Loan Scam. "I am still close friends with a lot of the JPM equities team and I know that the general feeling is that my situation was handled very poorly and most are in disbelief at the circumstances and would welcome me back with open arms." Ugh, Bitclout. Peloton Treadmills Unsafe for People With Young Children or Pets, Federal Agency Says. Top European football clubs sign up to breakaway Super League. $40,000 Swindle Puts Spotlight on Literary Prize Scams. How rational was Spock? If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] You can read some of the SEC's correspondence with Hometown here, and Hometown's replies here. They are a little unedifying, but it's not like the SEC hasn't noticed Hometown, or doesn't find it weird. "Please elaborate upon the arrangements you have entered into with Tryon Capital Ventures and VCH Limited for $15,000 and $25,000 per month, respectively, to explain exactly what services each consultant will be providing you," the SEC quite reasonably asks. "Considering your lack of revenue, please revise your liquidity disclosure to explain how you intend to finance these obligations. If the use of proceeds from your recent private placement will be used for these obligations, please state as much." [2] People occasionally conflate these shell-company reverse mergers with the current boom in special purpose acquisition companies, but they are really very different. A SPAC goes public and raises money specifically for the purpose of taking a private company public; it sells shares to the public and then has a public vote with a lot of disclosure to complete its merger. A reverse merger generally involves a public shell of a more or less defunct operating company (or at least one that pretended to have operations); the shell will be fairly closely held by a few insiders, and there will be no real money inside it. It is not a high-profile way to go public and raise money, the way a SPAC is; it's a low-profile way to sneak into the public markets. [3] Or maybe whatever process got it to $100 million in the first place — people who had a reason to want it there — also operated on Friday, with much more volume. But, why? |
★↠∺〖@NetFlix!〗 2020 Este cuerpo me sienta de muerte PelÃcula Completa En LÃnea released 2020. story: Tras intercambiar su cuerpo con un as...
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