Monday, June 22, 2020

June 22nd Links

  • The deeper hit to America is: how many asylum seekers will it take to destroy American morale? What number leave and break American spirits? Is it a small number like 50,000? Right now, a little over 3,000 renounce their citizenship each year, which is tiny, but remember that there's no foreign welcome mat geared towards the purpose. England might be a harbinger of things to come, as the UK loses over 100,000 native Britons each year and has so for a decade. Great Britain is circling the drain. Is it a mass exodus of 10 million? Think of the rush of talking to someone without the fear of the PC police. Magnify that by a town, a city, a state. How fast does the wave turn into a tsunami? The cry of the elderly to grandchildren would become: "Go East, young man." What does America say, if in the first year of the Russian Amerikanskiy Zone program 100,000 Americans leave the shores to escape the USG yoke, followed by 250,000 the next year and maybe 500,000 the third year? This would be in contrast to USG immigration policy focused on semi-literate Third Worlders and diseased gays. There would be silence. There would be no way to frame it positively. [links]
  • You joke (I think), but how aware are people that we narrowly skirted a third world-style coup here in the US just two weeks ago? You may recall that in the first week of June, the Antifa-Soros Media Industrial Complex was calling for a million "protesters" (aka rioters) to converge on Washington DC where the President was bunkered at the White House. In the run up to that June 6th weekend, the (Dem) DC mayor stood down law enforcement and National Guard, and the Joint Chiefs of Staff(!) started issuing strange public memoranda implying that they were on the side of rioters rather than the President (no reference to chain of command, "cannot abide divisiveness and hate", etc.) This is the classic Deep State color revolution checkmate: the imported mob storms the presidential palace while converged insiders preemptively scupper any official reaction. Whether the President flees or is sacked, he is discredited, and a new figure takes the helm "because of the unprecedented conditions of these turbulent times". AG Barr, head of the Depatment of Justice and one of the smarter and more perceptive guys in the White House, was sufficiently alarmed by the situation that he replaced the Federal troops around the White House (loyal to the JCS) with Department of Justice troops whose loyalty he could be more assured of. You know that moment in foreign wire service dispatches or Tom Clancy novels where different military cadres loyal to different government factions maneuver around the Capital to determine who will be in power next week? That happened here two weeks ago and almost no one noticed. That it didn't work this time (too few Antifa) doesn't mean the strategy is off the table. Notably, the deficiency on June 6th wasn't too few converged insiders (DC is awash with them, Barr notwithstanding) but too few outside mobbers. They'll be sure to rectify that next time. Just have to whip up a little more public frenzy and fund Antifa cells a little more... [Sailer]
  • We made the ferry to Seattle. The next morning, a hotel valet freed the muddy BMW from its hold. I found the footwells packed with detritus so specific to Northwest road trips: a crumpled coastal map, paper cups stained with double espresso, floor mats caked in Douglas fir needles. The car idled, defiant, next to a spotless Rolls Royce. I thought back to Cape Flattery's trailhead, when I wedged the BMW between lifted Toyota Tacomas. This is a deeply aspirational but supremely versatile vehicle, as all 3-Series have been. [Road and Track]
  • I really didn't want to post this. I love the Model Y, it's a great car and I really love Tesla. However...Caveat Emptor: My Model Y is leaking water through the headliner. Bring a bottle of water to delivery and test the seals on the roof of your model Y (around the edges of the glass roof). Shared this video (see attached GIF) with Tesla >48 hours ago and am shocked they haven't jumped all over this...crickets so far. Thinking I will want to return the vehicle. This is an incredible miss by the delivery team. I have to imagine the glass roof has to be removed, seals replaced and that the headliner and some electronics will have to be replaced, too...but again, no response from Tesla yet. Help me out here, Tesla, this thing cost me >$65k and can't be driven in the rain???Stay tuned to see if Tesla does the right thing. Interested to hear what you all would do if your Model Y wasn't remotely waterproof... [TMC]
  • Here, the three highest ranked known references are owned by Google, Stanford, or have Lawrence E. Page listed as an inventor.It makes sense that these would be the most similar.The specifications are likely nearly verbatim or cover the same system. The highest ranked third-party patent is Patent No. 5,848,407, Ishakawa et al., assigned to Matsushita Electric Industrial Co.A heat map (a red color scheme is used here to signify the heat map is for a reference that pre-dates the claims) and claim chart can be automatically generated to help analyze the strength of the patent relative to this art reference. [JDBIP]
  • Folks in Diesel land will toss around the phrase "bulletproof" alot because the engine can loaf at 1200rpms on its way to 500,000 miles on the original pistons/rings/head gasket/whatever. Ok, fair, enough. But if you scrutinize most owners experiences they'll routinely drop $2k/year or more on mechanical repairs in addition to maintenance activities. I've known a few high-miler diesel ford owners who ran ~$4k a year in ownership expenses for repairs and maintenance for several years in a row. 3 years/50-60k miles and they've got $12k of receipts on their "bulletproof" vehicle. [Jalopnik]
  • The picture of King Charles II. was often set up in houses, without the least molestation, whereas a while ago, it was almost a hanging matter so to do; but now the Rump Parliament was so hated and jeered at, that the butchers' boys would say, 'Will you buy any Parliament rumps and kidneys?' And it was a very ordinary thing to see little children make a fire in the streets, and burn rumps. [Pepys]
  • Today's well-intentioned activists have become the useful idiots of big business. With their adoption of "open borders" advocacy—and a fierce moral absolutism that regards any limit to migration as an unspeakable evil—any criticism of the exploitative system of mass migration is effectively dismissed as blasphemy. Even solidly leftist politicians, like Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom, are accused of "nativism" by critics if they recognize the legitimacy of borders or migration restriction at any point. This open borders radicalism ultimately benefits the elites within the most powerful countries in the world, further disempowers organized labor, robs the developing world of desperately needed professionals, and turns workers against workers. But the Left need not take my word for it. Just ask Karl Marx, whose position on immigration would get him banished from the modern Left. Although migration at today's speed and scale would have been unthinkable in Marx's time, he expressed a highly critical view of the effects of the migration that occurred in the nineteenth century. In a letter to two of his American fellow-travelers, Marx argued that the importation of low-paid Irish immigrants to England forced them into hostile competition with English workers. He saw it as part of a system of exploitation, which divided the working class and which represented an extension of the colonial system. [American Affairs]
  • McCrum is a great reporter, but even if you didn't know that, when a company is going around accusing reporters of conspiring with short sellers to bring it down, that is an almost infallible sign that it is going down. (Well, Tesla keeps going up.) Companies that are not doing fraud, when reporters ask if they have faked their revenue, respond by explaining where their revenue comes from. Companies that are doing fraud, when reporters ask if they have faked their revenue, call the police to try to get reporters arrested. The weird thing is that it worked so well for Wirecard for so long. The German financial regulator, BaFin, did file a criminal complaint against FT journalists and short sellers; it also banned short selling of Wirecard stock for two months, "to protect the company from speculators." The news about Wirecard, now, is sort of trivial; anyone who read McCrum's reporting and knew the almost-infallible rules of short-selling conspiracy theories already knew that Wirecard was faking its revenue. [Matt Levine]

Friday, June 19, 2020

Friday Night Links

  • DHS created DACA during the Obama administration without any statutory authorization and without going through the requisite rulemaking process. As a result, the program was unlawful from its inception. The majority does not even attempt to explain why a court has the authority to scrutinize an agency's policy reasons for rescinding an unlawful program under the arbitrary and capricious microscope. The decision to countermand an unlawful agency action is clearly reasonable. So long as the agency's determination of illegality is sound, our review should be at an end. [SCOTUS]
  • At the outset of the pandemic, public officials declared that the only way to prevent the spread of the virus was for everyone to stay home and away from each other. They ordered citizens to cease all public activities to the maximum possible extent—even the right to assemble to worship or to protest. But circumstances have changed. In recent weeks, officials have not only tolerated protests—they have encouraged them as necessary and important expressions of outrage over abuses of government power. For people of faith demoralized by coercive shutdown policies, that raises a question: If officials are now exempting protesters, how can they justify continuing to restrict worshippers? The answer is that they can't. Government does not have carte blanche, even in a pandemic, to pick and choose which First Amendment rights are "open" and which remain "closed." [5th Cir]
  • One of the very few persons who had the guts to openly criticize Wirecard was Dan McCrumm, who via FTAlphaville published some critical articles who were very well researched. If I am not mistaken, the earliest articles were published in 2015 before more substantial coverage came in in 2018 and 2019. In typical fashion, Wirecard reacted in suing McCrumm and managed taht even the German regulator BAFIN to go after McCrumm as a market "manipulator". Nothing came out of this other that an official short selling ban for a period of time. Interestingly again, no one from BAFIn or the Police actually bothered to look at Wirecard itself. Personally, the FT for me gained "hero status" to not back down despite the massive effort to discredit them. [Value and Opportunity]
  • There's a capital allocation problem in every company run by agents, but there's some reason to believe that the oil and gas industry is especially bad.  There are a total of 1,042 public companies in the Oil & Gas Exploration & Production industry (GICS:10102020). There are 429 with market capitalization between $5 million and $250 million. Of those, only 72 have positive retained earnings. Just under 17 percent.  Glenn Chan has figured out how oil and gas managements work. Read his posts: How would a sociopath fleece investors in oil and gas? and Why would anybody want to invest in independent oil and gas? [CBS]
  • I've written in the past about low carb, which I think is the way to go. But some people claim to have good weight loss results (though not necessarily good health results overall) with diets that aren't low carb, or are even high carb - such as eating only potatoes. If this works, even just for some people, a good explanation of the mechanism is that monotonous diets are also effective for weight loss. [CBS]
  • All societies have the ability to embrace mass delusions that simply aren't true - we have efficient market hypothesis and warmism among others that are too dangerous to mention - but China seems worst because of the absence of unfettered channels of communication. He does meet one man who admits to being a bit more perceptive, an English speaking teacher at his college. [CBS]
  • The "planned birth" (abortion/infanticide) policy is not the eugenic master plan that we have been led to believe. Rural Chinese, Mongolians, and other minorities are allowed to have 2+ children and the urban Han Chinese are limited to one. If you're not too proud to do business with people who execute babies, shouldn't you at least worry about how they'll steward your investments? The government continues to sabotage economic progress by failing to create a system of private land ownership. Anyone who predicts that China is going to become an economic rival to the west is showing their Marxist colors by believing that economic progress can be imposed from the top down without a system of price signals between private owners. The country is incredibly corrupt. From the horse's mouth: "You know how China is: toushui loushui - stolen taxes and leaked taxes." Something naive western investors don't realize about these corrupt countries is that you have two choices: you either comply with the laws and pay the taxes that your competitors don't, making you the highest cost producer, or you pay the bribes and cheat, in which case you are corrupt and can be blackmailed. [CBS]
  • Don't just take our word for it - do your own research. Call the LICOA executives listed below and ask whether they put minority shareholders' interests first when making decisions. The company told State of Alabama insurance examination staff that they hired Rosalie F. Renfrow Causey because her "presence insures continuity in further company management by the Daugette family." How does this serve the interests of shareholders who are not Daugette family members? Can we trust that when management decides who to hire or whether or not to sell the company they put shareholders' interests first, as they are legally required to do? [LICOA Shareholders]
  • This week shareholders in Scheid Vineyards received the annual report in their email inbox. They've had a few rough years, but this year was a wallop to the gut for shareholders. Initially I was going to break down their results in a Twitter thread, but decided a blog update was more appropriate. [Oddball Stocks]
  • By 120,000 miles (approx 8 years), pretty much everything on my 1998 discovery 1 that could break, broke. Switches, the metal in the wires corroded into green jelly, both head gaskets, backfiring, transfer case frozen, cruise control, cd changer, death wobble up the yin yang. Doors not opening / latching, AC broken.. By comparison my dad's 2007 FJ cruiser has 150k, and he just had to take it in for a slight vibration on the highway.... Other than that just brakes, oil and other consumables... [Kinja]
  • Stop giving money or time to any Woke-supporting group. Stop supporting Woke universities or businesses. Stop watching Netflix and the NFL. Just stop. Starve them to the greatest extent possible. And push to defund any such groups that receive public funds. Just as importantly, support any ally that has started his own platform or business to compete with such organizations. Donate to them. Spread the word about them. Write good reviews about them. Such support is easy to do and pays dividends. [American Thinker]

Tuesday, June 16, 2020

Friday, June 12, 2020

Friday Night Links

  • The West raped the thousand-year-old borders and history of Central Europe. They forced us to live between indefensible borders, deprived us of our natural treasures, separated us from our resources, and made a death row out of our country. Central Europe was redrawn without moral concerns, just as the borders of Africa and the Middle East were redrawn. We will never forget that they did this. And when we thought that neither the arrogant French and British nor the hypocritical American empire could sink deeper than this, they could still do so. After World War II we were thrown to the Communists without heartache. The reward of the Poles, the Czechs and the Slovaks was the same as our punishment. May this be an eternal lesson for the peoples of Central Europe! Dear ladies and gentlemen! There have been many who wished to bury Hungary. There were those who wanted to deprive the Germans of an ally, there were those who wanted revenge on the Habsburgs, there were those who were driven by profit, and there were those who always hated Hungarians. They clung together to make us disappear from the face of the earth. But we are a stubborn people, and we were never willing to attend our own funeral. Our great-grandfathers didn't give up either. They did not kneel or ask for mercy. We stayed on our feet and endured. We endured the wagon towns, the Nazi camps, the Soviet gulag, the deportations, Czechoslovakia, Yugoslavia and Ceau?escu. Today, there is no Czechoslovakia, no Yugoslavia nor a Soviet Union. There is no British or French empire. And what's left of them is now twisting in the multicultural grip of their vindictive colonies. Even the greatest cannot avoid the justice of history. And just as it is true that what belongs together will grow together, it is also true that what does not belong together falls apart. They said it well a hundred years ago: we will be there at the funeral of those who wanted to put us in the grave. [Orban]
  • The best known historical example is the measures taken by the town of Gunnison, Colorado, during the 1918 influenza epidemic. To prevent an introduction of the infection, the town isolated itself from the surrounding area for two months at the end of 1918. All highways were barricaded near the county lines. Train conductors warned all passengers that if they stepped outside of the train in Gunnison, they would be arrested and quarantined for five days. As a result of the isolation, no one died of influenza in Gunnison during the epidemic. Several other communities adopted similar measures. Princeton University utilized protective sequestration and avoided any fatalities. In the South Pacific, the Governor of American Samoa, John Martin Poyer, imposed a reverse cordon sanitaire of the islands from all incoming ships, successfully achieving zero deaths within the territory during the influenza epidemic. In contrast, the neighboring New Zealand-controlled Western Samoa was among the hardest hit, with a 90% infection rate and over 20% of its adults dying from the disease. [Wiki]
  • In his post, Value Investing Blog alludes to a problem that minority shareholders have in these situations: a high fixed cost of fighting what the management and/or controlling shareholders are trying to do. It can be a significant cost in terms of time and attention, and for someone to rationally pay that cost upfront he would have to anticipate a higher expected benefit. An appraisal action is likely going to require dissenting shareholders to have an expert report. That suggests something important for corporate governance theory. The ownership structure of a company matters, and can be very important for the ultimate returns of shareholders. At the limit, if a company were to be owned by a large group of shareholders each holding a single share of de minimis value, it might be possible for the management to convert all of the company's equity to their benefit and rational for the shareholders to acquiesce. (In theory, the shareholders could resist as a class, but in practice those efforts have to be initiated and organized by a shareholder with an economic incentive to do so.) [Oddball Stocks]
  • The following is the inscription on the frame of the painting: "D. Hayes Agnew, M.D. Chirurgus expertissimus; scriptor et doctor clarissimus; vir veneratus et carissimus," which, being translated, reads: "The most experienced surgeon, the clearest writer and deacher, the man most beloved and venerated." [History of the Life of D. Hayes Agnew]
  • Shareholder equity then was $95 million. Now, as you'll see below, it is $242 million! Current assets net of all liabilities was only $13.6 million. Now it's $126 million. (So, the price to book is now 0.2x and the price to NCAV is 0.39x.) Part of the problem is that earnings have declined. In the 2003 fiscal year, Hanover earned $9.8 million on $290 million of sales. In fiscal 2019, earnings were only $2.6 million on $395 million of sales. The 1% return on equity translates into a 5% earnings yield thanks to the 80% discount to book value. [Oddball Stocks]
  • Through a pervasive national marketing campaign and a purposefully manipulative sales pitch, Tesla has duped consumers, including Hudson, into believing that the Model S and the suite of purportedly autonomous and semi-autonomous driving features that Tesla incorporated into the Model S can safely transport passengers at highway speeds with minimal input and oversight from those passengers. In reality, the Model S and the Active Safety Features do not and cannot function as Tesla claims and are dangerous to operate on our nation's highways. Specifically, despite Tesla's claim that the Active Safety Features are designed for use at highway speeds, the Active Safety Features are unable to reliably detect stationary objects such as disabled vehicles or other foreseeable roadway hazards, posing an inordinately high risk of high-speed collisions, severe injury, and death both to Tesla's passengers and to the driving public. [PlainSite]
  • Richard Nixon: The man is an enigma. Despite the millions of words written about him, great mystery and much speculation surround the former president's drinking habits and ability. This is largely due to the vast contradictions of witness testimony: those charged with whitewashing his reputation swear he barely touched the stuff while others say he poured it down by the quart but possessed such incredible self-discipline that he was able to shrug off the effects—usually. All this swirling obfuscation makes for a difficult opponent—how do you attack or defend yourself from a shadow? [Modern Drunkard]
  • Given the Company's history of destroying shareholder capital, as one of the Company's largest shareholders (and one who—like other shareholders—has seen the value of their investment decrease by more than 40% this year), it was disturbing to read in the Secret November 1 Letter that Driver's exercise of its rights as a shareholder—rights that any shareholder, whether they own 1 or 100,000 shares, might exercise—to question the strategic direction of the Company and request that the Company's board of directors take steps to increase shareholder value "placed and will continue to place, significant strains on the ability of the Company's board and management team to manage the Company and the Bank" and that "if left unchecked," Driver's exercise of its rights as a shareholder "could present a risk to the continued safety and soundness of the Company and the Bank." By the Company's own admission, a single shareholder, exercising its fundamental to question the strategic direction of a public company and request that its board of directors take actions to increase shareholder value, was so distracting as to overwhelm the Company's board of directors and management team, to the extent of putting the safety and soundness of the Company and the Bank at risk. If the burdens of managing a public company—and responding the concerns of its owners—are so onerous as to rise to the level of a risk to the safety and soundness of the Company and the Bank, the Maryland Commissioner should immediately investigate whether the Company's management has the capacity to manage the Company and the Bank without further jeopardizing the Company's and Bank's safety and soundness and take such steps—whether causing the board of directors to replace, augment or upgrade the Company's management team, eliminating unnecessary distractions taxing the attention of Ms. Rodeheaver and other members of senior management or otherwise—as the Maryland Commissioner may see fit in order to ensure the safety and soundness of the Company and the Bank. [EDGAR]
  • An even more obvious constitutional flaw of Section 16(b) is that it does not meet the Supreme Court's requirement for Article III standing because it purports to authorize a "suit to recover such profit... by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer" even though the issuer has not been harmed. In Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, the Supreme Court found that one could not sue for damages unless the party alleged that (1) it suffered an actual injury as a result of the defendant's actions and (2) that a favorable ruling would compensate the plaintiff for the injury suffered. [Phillip Goldstein]
  • I have no idea why Section 28(a)'s prohibition on windfall monetary awards has never been raised in a Section 16(b) case. Whether or not the short swing profits recoverable under Section 16(b) are classified as punitive damages, it seems indisputable that they are a windfall for a corporation and not its actual damages. Could a Section 28(a) defense alleviate what the Supreme Court has called "the harsh result of imposing §16(b)'s liability without fault?" All fair-minded persons should certainly hope so. [Phillip Goldstein]
  • Richard Nixon was proud of his Martini making skills. Nixon called them "Silver bullets." After one Nixon would be drunk, having a low tolerance for alcohol. A drunken Nixon was a loquacious Nixon. Here is Nixon's recipe which told me was given to him by Winston Churchill. Obtain a bottle of large-sized olives. Drain the juice. Fill the olive bottle with Vermouth. Refrigerate the bottle. Put three fingers of gin or vodka over ice in a silver martini shaker. Shake vigorously until shards of ice permeate the alcohol. Pour in a chilled Martini glass. Drop in one olive from the jar. [Roger Stone]
  • The following analysis is motivated by a discussion that took place in front of the Third Precinct as fires billowed from its windows on Day Three of the George Floyd Rebellion in Minneapolis. We joined a group of people whose fire-lit faces beamed in with joy and awe from across the street. People of various ethnicities sat side by side talking about the tactical value of lasers, the "share everything" ethos, interracial unity in fighting the police, and the trap of "innocence." There were no disagreements; we all saw the same things that helped us win. Thousands of people shared the experience of these battles. We hope that they will carry the memory of how to fight. But the time of combat and the celebration of victory is incommensurable with the habits, spaces, and attachments of everyday life and its reproduction. It is frightening how distant the event already feels from us. Our purpose here is to preserve the strategy that proved victorious against the Minneapolis Third Precinct.Our analysis focuses on the tactics and composition of the crowd that besieged the Third Precinct on Day Two of the uprising. The siege lasted roughly from 4 pm well into the early hours of the morning of May 28. We believe that the tactical retreat of the police from the Third Precinct on Day Three was won by the siege of Day Two, which exhausted the Precinct's personnel and supplies. [link]
  • Shareholders frustrated by these low returns have set-up a website called Concerned Shareholders of Life Insurance Company of Alabama (LICOA) and are asking the company tough questions. Like, why are the results so poor? Why is the CEO spending $4.7k on a desk chair when the company is losing money? Why are insiders (most of whom are related) paying themselves 84% of 2018 pre-compensation income? The website contains all of this shareholder correspondence, and also financial reports from the company, different documents of interest, and links to some of the shareholder lawsuits. [Tim Bergin]

Bankrupt Hertz ($HTZ) Allowed to Dump New Shares on Retail Rubes!

Upon the motion (the “Motion”) of the Debtors for entry of an order (this “Order”)pursuant to sections 105(a) and 363(b) of the Bankruptcy Code authorizing, but not requiring,Debtors to enter into a sale agreement with Jefferies LLC and to sell shares of the common stockof Debtor Hertz Global Holdings, Inc. (“Hertz”) through at-the-market transactions for anaggregate offering price of up to and including $1,000,000,000, which in no event will result inthe issuance of more than 246,775,008 shares of common stock; and the Court having found thatit has jurisdiction to consider the Motion and the relief requested therein in accordance with 28U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference, dated February 29, 2012(Sleet, C.J.); and consideration of the Motion and the relief requested therein being a coreproceeding pursuant to 28 U.S.C. § 157(b); and venue being proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409; and due, sufficient, and proper notice of the Motion having beenprovided under the circumstances and in accordance with the Bankruptcy Rules and the LocalRules, and it appearing that no other or further notice need be provided; and a hearing havingbeen held, if necessary, to consider the relief requested in the Motion (the “Hearing”); and therecord of the Hearing, if any, and all of the proceedings had before the Court; and the Courthaving found and determined that the relief sought in the Motion is in the best interests of theDebtors, their estates, their creditors, their stakeholders, and all other parties-in-interest, and thatthe legal and factual bases set forth in the Motion establish just cause for the relief grantedherein; and after due deliberation and sufficient cause appearing therefor,
1. The Motion is GRANTED as set forth herein.
2. Pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, the Debtors arehereby authorized, but not required, to enter into the Sale Agreement and perform all obligationsthereunder, including without limitation, all indemnification obligations owing to Jefferies,without further order of the Court.
3. The Debtors are authorized, but not required, to sell shares of the common stockof Debtor Hertz Global Holdings, Inc. through at-the-market transactions using the existing shelfregistration statement on Form S-3 (File No. 333-231878) previously filed by Hertz with theU.S. Securities and Exchange Commission and declared effective on June 12, 2019, for anaggregate offering amount of up to and including to $1,000,000,000, which in no event willresult in the issuance of more than 246,775,008 shares.
4. Jefferies shall be entitled to retain, from the proceeds generated from the sale ofthe unissued stock, amounts equal to all fees owing under the Sale Agreement, without furtherorder of the Court; for the avoidance of doubt, Jefferies shall not be deemed a retainedprofessional under section 327 or 328 of the Bankruptcy Code and shall not be required tosubmit fee applications pursuant to section 330 of the Bankruptcy Code.
5. The Debtors are authorized and empowered to execute and deliver suchdocuments and to take and perform all actions necessary to implement and effectuate the reliefgranted in this Order.
6. This Court retains jurisdiction with respect to all matters arising from or related tothe enforcement of this Order.

Thursday, June 11, 2020

Resurgence of Bubble

The U.S. has had three bubbles in 20 years: late 90s, 2005-2008, and the current one.

Each one has been bigger and crazier than the last.

Just the bear market bounce (April/May/June 2020) of this third bubble is crazier than any bubble before it:

Our correspondent @pdxsag (previously) writes in:
Today I had an epiphany that the markets — as they glory in their wanton, unchecked fraud —are now exhibiting the same dynamics as a crowd looking to riot.

As the Scholars Stage blog explained, riots are inherently a coordination problem. The same can be said for pump & dump schemes. If you consider investors as a motley crew of animal spirits, it would certainly stand to reason that at any point in time there exists a non-trivial number of investors that would gladly engage in blatant pump & dump stock manipulation. Their problem, of course, is how to coordinate. Like soccer hooligans looking for a riot, they need “an incident.”

If you’ve been dumb-founded by the stock runs in HTZ and CHK, it hopefully will make perfect sense when you realize that the bankruptcy filing is now the easily and universally understood “incident.” It’s akin to the sound of broken glass in a real riot. When a company files for bankruptcy protection pump & dump “entrepreneurs” quickly bid up the price to see if it "sticks.” If it’s not halted, if the exchanges and SEC make no effort to arrest the run then more traders jump on the stock driving the price higher still. Pretty soon it’s like a Macy’s being looted as hundreds of people are crashing into the stock looking to grab a quick buck and be gone. The daily volume when a stock is undergoing a viral pump & dump can be 10x of the float or more. Day traders, I suspect many of which are algos, are churning through blocks of shares not holding any individual shares for more than a few minutes at a time. Sure there is slippage with all that churn, but it’s important to not be caught holding the hot potato.

Another example of a now too obvious incident is the transparently fraudulent press release. In this market, where investors freely quip "Fraud is Alpha,” it stands to reason that a fraud-y press release is a clear signal from management to day traders that they are looking to play ball. Elon Musk has notoriously refined this to an art. In fact, today Tesla closed above $1000 for the first time ever on the back of a “leaked" email from Elon related to the development of the Tesla semi. The impetus has nothing to do with the business prospects of the semi, and everything to do with significant OTM call buying yesterday to get people’s attention and an incident today in the form of the leaked email.

We’ve seen similar incidents with various Covid vaccines news stories, press releases, and TV appearances by company CEO’s.

The markets are in one giant, late-stage pump and dump, and the regulators — like the police across many cities today — are overwhelmed and conspicuously enough to any bad actors looking for an easy looting, are standing-down.

Friday, June 5, 2020

Friday Night Links

  • Louisa had been overheard to begin a conversation with her brother one day, by saying 'Tom, I wonder' - upon which Mr. Gradgrind, who was the person overhearing, stepped forth into the light and said, 'Louisa, never wonder!' Herein lay the spring of the mechanical art and mystery of educating the reason without stooping to the cultivation of the sentiments and affections. Never wonder. By means of addition, subtraction, multiplication, and division, settle everything somehow, and never wonder. [Hard Times]
  • The Surgeon General of the United States was not Marvin Chirelstein's general. Marvin did not doubt the Surgeon General's warnings that smoking cigarettes was harmful to one's health; he just didn't care, and he refused to quit. Marvin enjoyed gambling, and this was no doubt the most important bet he ever won. [Columbia Law Review]
  • Imagine a thousand parallel universes beginning in 1920 where high school dropouts drill exploratory wells in Texas based on gut feelings. There would be oil billionaires in every one of the universes, but unless any of them had an intelligent mechanism for predicting the presence of oil, it would be a different group of billionaires in each universe. In other words, if success is based on luck, you can expect outcomes to quickly revert to the mean. And if the success was based on luck, you would also expect the oil fortunes to dissipate quickly in a flash of decadent spending and poor investment. Which is exactly what happened, with the exception of one family in the book. [CBS]
  • Law enforcement has had to focus on protecting large institutions such as the Federal Reserve and power plants, acknowledging that that emphasis has come at the expense of small businesses, many of them family- and minority-owned, that have gone up on flames or been gutted by looters. [Power Line]
  • But what exactly are you getting in return for your contributions to this system? The authorities clearly don't care about you. The police won't show up to save your life. Literally. During election years, sweaty politicians claim to be on your side. It's a lie. They're not. They'll waste your time with hollow posturing. They'll feed you pointless symbolic victories and expect you to celebrate, like you've actually won something. But when the mob comes, they're gone. You're on your own. [Tucker Carlson]
  • In response to the COVID–19 health crisis, California has now limited attendance at religious worship services to 25% of building capacity or 100 attendees, whichever is lower. The basic constitutional problem is that comparable secular businesses are not subject to a 25% occupancy cap, includ-ing factories, offices, supermarkets, restaurants, retail stores, pharmacies, shopping malls, pet grooming shops, bookstores, florists, hair salons, and cannabis dispensaries. [SCOTUS]
  • Riots then are best understood as a coordination problem. People must act together for the riot to proceed, and importantly, they must act at the same time. Corporations and military commands develop vast hierarchies to ensure that those in their employ work in concert. The rioter does not have this option available to him. Haddock and Poisby quote a passage from Thomas Schelling's Strategies of Conflict that explains why. Absent long-term leadership, the coordinating mechanism for the would-be rioters is almost always an incident. The incident itself can be almost anything, provided that all would-be rioters understand that what has just happened is in fact "an incident". Once a crowd has gathered in response to an incident, there are still two hurdles that would-be rioters must overcome to transform a mere crowd into a destructive mob. The first is that the crowd must have massed in sufficient concentration and speed at "one place [where] police cannot mass at a correspondingly rapid rate... [so that] that offenses occur rapidly enough to overwhelm the police." The second is that the would-be rioters must find a way to judge the composition of the crowd. Haddock and Poisby describe the individuals who go about testing the desire of the crowds riot entrepreneurs. [Scholars Stage]
  • This webpage is for fellow minority shareholders of Life Insurance Company of Alabama ("LICOA"), a small insurance company that is headquartered in Gadsden, Alabama. The company has two classes of stock which trade on the OTC, one is "LINS" and the other is "LINSA". Despite being owned by a diverse group of shareholders, LICOA is controlled by descendants of its founder Clarence W Daugette, who work for and/or sit on the board of the company. The interests of this family group inevitably conflict with the interests of those of us shareholders who are "outside the family". Over the three years from 2017-2019, LICOA earned only $856,126 on average per year. The return on equity that we shareholders are getting is barely 2%. The investments that LICOA owns earn more than this – they had net investment income of $4.6 million on a $101 million bond portfolio last year. So our capital has been leveraged by a factor of 2.5 to one, only for our return to be lower than the underlying investments. We are taking more risk and getting less reward – a totally unacceptable tradeoff. LICOA stock trades at depressed prices. The 52 week low for a LINSA share was $11.24, only 29% of the amount of capital and surplus per share (which was $39.13) that the LINSA shares had at the end of 2019. Two LAWSUITS have been filed by different groups of LICOA shareholders against the company and certain of its directors. Please contact us if you would like to receive copies of the complaints or other pleadings. LICOA has made offers to settle litigation with some of the plaintiffs via buying them out. In March 2020, they offered some plaintiffs the equivalent of $25 per LINSA share. [LICOA]
  • Under democracy there is a false choice between Trump and Biden. Middle class U.S. "kulaks" can have a guy who sacrificed thousands of lives to prop up his stock market bubble for a couple extra weeks or the totally demented figurehead of the political coalition seeking to dispossess them. Biden's base hates kulaks so much that he still insists we would have to have open borders bringing in more coronavirus cases if we got our epidemic under control. [CBS]
  • The lenders that fund Chapter 11 reorganizations exert significant influence over the bankruptcy process through the contract associated with the debtor-in-possession ("DIP") loan. In this Article, we study a large sample of DIP loan contracts and document a trend: over the past three decades, DIP lenders have steadily increased their contractual control of Chapter 11. In fact, today's DIP loan agreements routinely go so far as to dictate the very outcome of the restructuring process. When managers sell control over the bankruptcy case to a subset of the creditors in exchange for compensation, we call this transaction a "bankruptcy process sale." We model two situations where process sales raise bankruptcy policy concerns: (1) when a senior creditor leverages the debtor's need for financing to lock in a preferred outcome at the outset of the case ("plan protection"); and (2) when a senior creditor steers the case to protect its claim against litigation ("entitlement protection"). We show that both scenarios can lead to bankruptcy outcomes that fail to maximize the value of the firm for creditors as a whole. [SSRN]
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