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Posts Tagged ‘bubble

“I’m forever blowing bubbles / Pretty bubbles in the air”*…

 

Hertz

 

Last Wednesday, Hertz, which has filed for bankruptcy, suspended it’s plans to sell lots of new shares.  The backstory is fascinating… and sadly, all-too-indicative of our times…

Ok, so. Up until this year, I would’ve told you that there are two general kinds of financial bubbles.

The first kind of bubble is where everyone believes the future will be like the present. Think credit bubbles and real estate; think 2007-2008, where the fundamental belief that drove the bubble forward and into ruin was “We’ve figured this out. We can’t lose. The risk has all been worked out. Lever up, cowboy. We will never die.”…

The second kind of bubble is where everyone believes the future will be different from the present. Think equity bubbles, startups, and crypto; think 1999, where the fundamental belief that drove the bubble forward and into ruin was “It’s a new economy. All the rules are different. The upside is unlimited. If you get in now, you’ll be rich. We’re going to live forever.”…

I was wrong. There is a third kind of bubble, it’s happening spectacularly right now, and we’re going to see it a lot more in the future.

If the first kind of bubble is “everyone thinks the future will be the same”, and the second kind is “everyone thinks the future will be different”, the third kind is “everyone thinks the future doesn’t matter.”…

I’m sure most of you have heard of the Wallstreetbets subreddit by now; if you haven’t, the best way I know how to explain it is that it’s like “multiplayer Jackass for the stock market.”

Wallstreetbets started as a bunch of random internet yahoos bragging about crazy YOLO trades they’d make (and would actually follow through on!), and what enormous percentages of their net worth they’d win or lose spectacularly. I really do think that Jackass is a good comparison here. Yes, these people are trying to get rich; but more importantly, they’re trying to provoke reactions. It’s a game of who can be the most shocking. There’s really not much difference between reading some of these WSB posts and watching an old Jackass sketch. You’ll laugh until you can’t breathe, and then keep laughing when you realize someone actually got kicked in the crotch that hard.

But as it got more popular, some actually sophisticated (and supremely aggressive) traders are getting in on the fun, and it got highly competitive and weird. It’s the newest version of “the stock market as full-contact sports with legal gambling”, and it’s a lot of fun. No one here cares about valuation or fundamentals. It is explicitly a casino. Everyone is here to get in and out of a position in the most shocking way possible. And, astoundingly, there’s enough AUM getting accumulated behind these bets that it can actually start to move individual stocks in weird ways.

The groundwork for this strange show has been built up over a few years, but when the pandemic hit, all hell broke loose. A perfect storm of events come together: first, generational volatility in the stock market as everyone tried to get in front of (and then out from) a global pandemic; second, everyone getting quarantined at home and desperate to feel something, and third: no sports.

Enter Hertz. 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. When the pandemic hit, they got called on their debt, couldn’t make it work, so they had to declare bankruptcy and start a restructuring process.

But then weird things started to happen. Hertz’s stock, which is presumably 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?

There’s no way to describe it other than, this is a Jackass sketch taking place. It started out as these internet YOLO traders playing an increasingly stupid game of chicken. But then it… caught on? Other people started to get in on this too. Hey, obviously the stock in the long run is worth zero. Everyone knows that. But it’s going up, and tomorrow it might go up more. If this were just some dumb penny stock with a cool story attached to it, that’d be old news. This is different.

When you see a stock getting bid up like this, the only conclusion you can draw is “The future does not matter, because in between now and then, this is explicitly just spinning a roulette wheel. The stock could go up or down, who knows, but at least you know it has nothing to do with the underlying value of the stock (which we all know is zero!), and everything to do with other gamblers.

So Hertz sees this happening, and they’re like, well, if there’s demand for our stock, we should go sell some! I mean, it’s a ridiculous kind of demand, and it’s not “real” demand, but hey, maybe it’s real enough. So Hertz files, and is granted, an emergency request to their bankruptcy judge to issue a billion dollars worth of new stock in order to take advantage of whatever this is. Tom Lauria, one of the attorneys representing Hertz, had an all-timer line: “New platforms for day traders may be facilitating this. There are forces at work that us non-financial people, that we can only observe.” The SEC, presumably between gasps of laughter, declined to weigh in on whether the transaction was legal, saying “it is up to the company to comply with securities law.”

Just to restate how funny this is: Hertz is granted permission, by their own bankruptcy judge, to sell stock in their company which has already declared bankruptcy, because due to weird mojo in the universe, there’s a small army of reddit trolls playing chicken with each other and it just might save the company. Financial Twitter goes crazy, and (of course!) people start bidding up stocks of other bankrupt companies. It was a great day to be online…

Eminently worth reading in full– the ever-illuminating Alex Danco on the emergence of a new kind of financial bubble: “Never Hertz to Ask.”

See also “Speculative Booms” in Jamie Catherwood’s “The State of the Market” (and then, here); plus “Hertz share issue: demolition derby” and “Trading Sportsbooks for Brokerages, Bored Bettors Wager on Stocks.”

And experts suggest that there’s going to be more–lots more– scope for creativity: “A Tidal Wave of Bankruptcies Is Coming.”

* Popular American song; music by John Kellette; lyrics credited to “Jaan Kenbrovin” — actually a collective pseudonym for the writers James Kendis, James Brockman and Nat Vincent, combining the first three letters of each lyricist’s last name. The number was debuted in the Broadway musical The Passing Show of 1918

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As we pucker up, we might recall that it was on this date in 1970 that Penn Central, a century-old American railroad company, declared Section 77 bankruptcy, the largest ever U.S. corporate bankruptcy up to that date.  They did not use the occasion to issue stock, and did later exit bankruptcy, and were ultimately folded into Conrail, the U.S. government’s railroad holding company.

150px-PennCentral_Logo.svg

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Written by LW

June 21, 2020 at 1:01 am

“The bubbles of certainty are constantly exploding”*…

 

The internet, most everybody agrees, is driving Americans apart, causing most people to hole up in sites geared toward people like them… This view makes sense. After all, the internet gives us a virtually unlimited number of options from which we can consume the news. I can read whatever I want. You can read whatever you want…  And people, if left to their own devices, tend to seek out viewpoints that confirm what they believe. Thus, surely, the internet must be creating extreme political segregation.

There is one problem with this standard view. The data tells us that it is simply not true.

See for yourself at “Maybe the internet isn’t tearing us apart after all.”

* Rem Koolhaas

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As we listen for the pop, we might recall that it was on this ate in 1622 that the Stationers Register recorded (allowed the publication of) the first issue of a news weekly– a series of reports from foreign correspondents, generally considered to have been the first “newspaper” in the English language.

Cover of the second issue (the first issue is lost)

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Written by LW

May 18, 2017 at 1:01 am

“This world’s a bubble”*…

 

From “The Bay Area to Standard English Translator.”

[A similarly silly-but-serious bonus: “An Interactive Guide to Ambiguous Grammar.”]

* alternately attributed to St. Augustine and to Francis Bacon

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As we send birthday greetings to the father of the field of sociology and the discipline of Positivism, August Comte, we might recall that it was on this date in 1929 that bearish economist Roger Babson gave a speech in which he warned, “sooner or later, a crash is coming, and it may be terrific.” He had been delivering this message for two years, but for the first time, investors listened. The stock market took a severe dip (now known in economic history as “the Babson Break”).  The next day, prices stabilized, but the equity collapse that we know as a trigger event for the Great Depression had begun.

Roger Babson

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Written by LW

September 5, 2015 at 1:01 am

“If you think this Universe is bad, you should see some of the others”*…

 

In cosmology as in so many branches of the scientists, theorist tend to get most of the attention.  But in the end, it’s experimentalists who covert hypothesis into knowledge.  Current theories suggest that our universe– which could be “the universe” or could be one of many– could be a hologram, a computer program, a black hole or a bubble—and, experimentalists suggest, there are ways to check…

Ponder their proofs at “What Is the Universe? Real Physics Has Some Mind-Bending Answers.”

* Philip K. Dick

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As we practice our pronunciation of “billions and billions,” we might spare a thought for Ron Toomer; he died on this date in 2011.  Toomer began his career as an aeronautical engineer who contributed to the heat shields on NASA’s Apollo spacecraft.  But in 1965, he joined Arrow Development, an amusement park ride design company, where he became a legendary creator of steel roller coasters.  His first assignment was “The Run-Away Mine Train” (at Six Flags Over Texas), the first “mine train” ride, and the second steel roller coaster (after Arrow’s Matterhorn Ride at Disneyland).  Toomer went on to design 93 coasters worldwide, and was especially known for his creation of the first “inversion” coasters (he built the first coasters with 1, 2, 3, 4, 5, 6, and 7, loops).  In 2000, he was inducted in the International Association of Amusement Parks and Attractions (IAAPA) Hall of Fame as a “Living Legend.”

Toomer with his design model for “The Corkscrew,” the first three-inversion coaster

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“The Corkscrew” at Cedar Point Amusement Park, Ohio

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Written by LW

September 26, 2014 at 1:01 am

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