
Never Hertz to Ask - imartin2k
https://alexdanco.com/2020/06/14/never-hertz-to-ask/
======
ak39
"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/enr...](https://famous-
trials.com/images/ftrials/Enron/documents/enronstockchart.pdf)

Notice the daily returns from the 3rd of December 2001. So, really, what has
been going on _forever_?

~~~
H8crilA
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.”_

~~~
codeulike
“I guess they’re trying to catch whatever the opposite of a falling knife is.”

profound

~~~
bibinou
Ethan Hunt jumping on a plane taking off:
[https://www.youtube.com/watch?v=elpUGB9Ap1Y](https://www.youtube.com/watch?v=elpUGB9Ap1Y)

~~~
codeulike
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)

------
bronzeage
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
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
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)

~~~
wpietri
I don't think so. Per Crunchbase, Amazon only took $108 million in investment.
Uber took $8 billion. Although I have plenty of issues with Amazon's behavior,
I think they earned their market dominance the hard way.

~~~
rauchp
Amazon has been raising money though bonds for a while now, though. They even
recently raised $10 billion in bonds at a crazy low rate.

[https://markets.businessinsider.com/news/stocks/amazon-
raise...](https://markets.businessinsider.com/news/stocks/amazon-
raised-10-billion-through-record-low-borrowing-costs-2020-6-1029272938)

~~~
wpietri
Fair point. Although I think Amazon is doing that based not on speculation
about the possibility of gaining market dominance, but because they already
have it. The fact that it's bonds and not venture funding is a sign.

------
rexreed
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.

~~~
benjaminwootton
Maybe someone needs to do to rental cars what Uber did to Taxis.

If I could order one on my phone, have it be ready or turn up, and avoid all
of that complexity over insurances and tolls then I would probably sell my own
car and use that.

I’m sure the rental companies have some digital stuff, but I generally
associate rental cars with queuing at an Avis counter for an hour after a long
flight, lots of paperwork and getting hit with fees etc. For exactly this
reason I tend to stick with Uber on business trips over rental cars.

~~~
lotsofpulp
> I’m sure the rental companies have some digital stuff, but I generally
> associate rental cars with queuing at an Avis counter for an hour after a
> long flight, lots of paperwork and getting hit with fees etc. For exactly
> this reason I tend to stick with Uber on business trips over rental cars.

I just rented cars two times in the past two weeks. I was able to shop online
between a few different rental car agencies (there’s only 3 big ones that own
all the major brands, although I like to stick with
Enterprise/Alamo/National). I made a reservation after a few minutes of
shopping, I walked up to the counter, gave my ID and credit card, had the car
in next 5 minutes and drove away in a total of 10 min max with the clean car
that I wanted.

I’ve done this many times too. I don’t see why I would trust a random stranger
more than a business who should have established best practices and proper
insurance.

I also prefer proper hotels to stay in than random Airbnb. I don’t even have
to talk to anyone at many Hilton branded hotels, and they have an online chat
option in their app with the front desk.

~~~
Nextgrid
My worry with both the car rental market as well as hotels is the constant
upselling or offers/loyalty programs/etc.

The good part about Uber or Airbnb is that there isn’t any of that. You find
what you want, pay the price they ask for and that’s it. I agree that there
are other major problems with them but at least the user experience for buying
the service is on point.

When it comes to hotels I either have to book direct and fill in my details
every time (I don’t have a preference for any brand, so having an account with
one particular brand doesn’t solve the problem either) or use sites like
Booking/Expedia and suffer the constant upselling or dark patterns.

I don’t need your “loyalty” or “offers” or anything. I need you to tell me
what’s available, take my money and get out of my way. I’d gladly pay money if
such a service existed (that doesn’t belong to any particular hotel chain so
that _all_ the hotels are on there).

~~~
roel_v
Uh? All airbnb does is try to push you to their 'experiences'. And God forbid
you ever gave Uber your email address, they'll try to get you on Uber Eats for
many rounds of the 'unsubscribe me from yet another list I never realised I
never signed up for' dance.

~~~
Nextgrid
Regarding Airbnb it's been years since I last used it so maybe they changed in
which case it's too bad.

As far as Uber is concerned I've used it up to last year and I don't recall
ever getting an unwanted marketing e-mail from them (disabled all marketing
comms in the app early on when I signed up and they respected that just fine).

------
reitzensteinm
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...](https://www.reddit.com/r/wallstreetbets/comments/4ox508/yolo_ban/)

~~~
rhaps0dy
> Martin Shkreli was an early member and moderator > u/martinshkreli

Surely this is not the actual Shkreli, but rather an impersonator?

~~~
martinko
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.

------
H8crilA
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
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
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
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)

------
yomly
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
It would take a lot more than some redditors with 1k each to move thwbmarket
like this

~~~
hijinks
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
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
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
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
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"

------
aazaa
>... 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
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.

------
tankenmate
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
> some scammed unsuspecting retiree losing their shirt is another.

how could a retiree (or anyone for that matter) be scammed into buying Hertz?!

~~~
bigiain
Do you know whether your retirement or pension fund hold shares of Hertz?
Would you have cared 6months ago?

------
anonu
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.

~~~
soared
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
Is he really any worse than Cramer taking advantage of retired geriatrics with
declining faculties on daytime cnbc?

------
roland35
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
> 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
>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
It seems like that would very quickly become much more expensive than just
renting a car.

~~~
capableweb
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.

------
LatteLazy
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...

~~~
blueblisters
> its shares today are worth something because there is still the chance
> thelat may not happen

Doesn't equity go to zero (and reset), if the new capital is not enough to
cover the debts?

~~~
LatteLazy
No, weirdly enough that’s actually very unusual. They’ll get no dividends for
a while and they will be diluted, but they almost always end up with some
value. I can’t say I understand it totally, I’m just speaking historically...

Plus that’s assuming it even gets that’s far. Hertz may get a fat cheque from
the federal government or the companies it’s been buying cars from or some
other source. Maybe a competitor will offer something for some locations and
stock?

This is the thing about stocks that take a tumble. If it’s trading at 5% what
it was last month, and it’s actually worth 6%, you can buy at 5 and sell at 6
and make a 20% profit.

------
sytelus
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
> no one is playing with their own money

Who's money is it then?

~~~
ric2b
The people investing in the funds.

------
argonaut
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
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
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
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.

------
baby
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
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?

------
idoby
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
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
> 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?).

------
sam_goody
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?

~~~
rtempaccount1
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
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
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.

------
burlesona
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
Low interest rates are destroying everything.

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

------
jimmysong
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.

------
rsp1984
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
Whats even your point

------
truculent
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).

------
curation
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.

------
drited
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.

------
cs702
"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_KeynesTheoryofEmpl...](https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmployment.pdf)

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drtillberg
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
> 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

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chii
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
I guess the SEC should be interested in a listed company deliberately selling
worthless stock?

~~~
netsharc
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
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.

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jiofih
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.

~~~
naveen99
Retail owns 30% according to top google results.

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arpinum
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?

~~~
goodcanadian
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
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.

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

~~~
zacherates
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.

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

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draw_down
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
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.

