"Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels."
You will lose all your money unless there is an unanticipated improvement in business condition! I love how you just can't bullshit in your SEC-filings.
Yeah, they’re nothing like the sophisticated, mature investors that are buying 30-year government bonds that probably won’t even keep up with inflation.
To phrase less trollishly: there aren’t a lot of good investments now, and even government bonds seem overvalued.
That's called "financial repression". Sorry that it causes you to take excessive risks, there are many like you.
Walter Bagehot, the de facto founder of The Economist, was of the opinion that people will never stand 2% rates (and he meant plus :) ). They would rather fund anything, any project, the weirdest thing that offers any hope of yield; no matter how stupid.
And here we are, 143 years after Bagehot passed away. Sir, you are still absolutely correct!
Wouldn’t it be more accurate to call it “financial entitlement”, to believe that your capital would always have positive value?
While we’ll likely never run out of need for human labor, it’s very possible we’re running out of capital investment opportunities that realize a risk adjusted return above 0. “Too much money chasing too few deals” and all that jazz.
I totally agree that growth and gains on capital are not a given, but:
1) The world's real GDP is still going up. Or at least has been till 2019.
2) Even if it was to slow down and remove prospects of gains on capital - it still doesn't mean that people will adjust quickly; you'd have to rewrite the entire concept of pensions for starters.
3) It seems to me that core rates are seriously manipulated down (interest rates, default spreads, equity discount rates); just look at ballooning of the balance sheets of pretty much everything, or look at the share of "zombie" companies, that is companies that cannot even service their interest payments.
3 is of course just an opinion, but if true will result in serious clogging of the machine with useless actors. 3 is where, I believe, things like "bullshit jobs" / "the office" come from, for example.
BTW, as far as I can tell - the only thing that is still "working" is the Fourth Turning theory. It's a bold theory that many people have called bullshit, but it has worked well since the publication in the 90s. And of course matches the known pre-publication history dating up to a few centuries ago.
We're out of investment opportunities because the Fed keeps creating new money that immediately fills them rather than letting the market do so. The bond market bailout of a few months ago could and should have instead been funded with existing money, with a corresponding rise in bond rates. Expecting that a steward won't wantonly inflate away the currency is not "entitlement". And to the reality that these institutions are no longer constrained by notions of decency, people will move away to non-corrupt currencies.
I admit that I have very little knowledge about bond markets, but when you talk about moving away from "corrupt currencies" aren't all goverments / EU doing something similar just now? (is China?)
Everyone is in a deep trouble and trying to outprint themselves out of a problem. Even Germany (one of the best govt balance sheet country on the planet in 2019, going full Keynes and actually paying down their debts during the up phase of the cycle) may see a ratings downgrade. The CDS market is toying with this idea.
We don't know which type of volatility are we going to experience, the left tail or the right tail. So far major currencies are actually strengthening (deflation) against consumer baskets, but it's early days, I think.
Maybe even neither!
In either case, I'm watching the bond yields (while they are still visible ;) ), various consumer inflation measures and most importantly gold. Gold will tell you what's going on.
The thing about printing money though, is that if everybody does it, it negates a lot of the effect. That means that if you want the effect, you have to print more and more to keep up. The only other alternative is to realize that money is essentially a fictional construct that keeps capitalism moving forward, and to consider that people may not need to be slaves to some numbers in a computer system.
For me, and I think for many others, this is precisely the long term problem with printing: it is the exact opposite of capitalism.
he whole point of capitalism is to make capital scarce, and thus necessarily rejecting certain ideas (prospectuses), prevent them from being funded. If everything gets funded/rescued - what is the point?
>> While we’ll likely never run out of need for human labor, it’s very possible we’re running out of capital investment opportunities
Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.
Now I definitely see an end to passive capital gains in traditional financial markets; there's a lot of money sloshing around with not enough good places to put it. Anything near-passive (i.e. real estate) is also feeling similar pressures. It seems like a great time to build big projects that take a huge amount of money, I'm just not on board with pure public funding and all the issues that go with that.
> Now I definitely see an end to passive capital gains in traditional financial markets; there's a lot of money sloshing around with not enough good places to put it. Anything near-passive (i.e. real estate) is also feeling similar pressures. It seems like a great time to build big projects that take a huge amount of money, I'm just not on board with pure public funding and all the issues that go with that.
Carry this a little further, and this means either the death of the concept of retirement as we know it.
> Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.
Here is really the only hope. If we can recognize one day that it's just plain not necessary for humans to labor for ~50 years between ~20 and ~70, leaving them only with their "golden years" -- the ones where serious health problems start to take the life out of life.
I don't know what to call this type of society. It certainly wouldn't be "capitalist" in any real sense. It may be "post scarcity," but not necessarily. Perhaps it will be some weird techno-socialist thing?
I'm becoming less and less bullish on automation. It may be stupid, but I think that a lot of commmon tasks are functionally un-automatable, or at least not at an acceptable level of error.
Think about something as simple as phone support for pretty much any product or service. There's a ton of automation being employed there to relatively little effect - just try to do anything meaningful at any company yourself and you'll find you need to be shunted to a representative.
I recently needed to switch my phone plan ownership from a personal account to a company account. There were a couple of wrinkles that made my case more complicated than normal which I can't share. Despite 4 or 5 calls, I couldn't get it done. It just didn't seem like the process for doing this type of transfer didn't exist in any codified way. I could explain what I wanted to do in plain language, but it wasn't a valid transition. Not only was it invalid, it seems like nobody at this major phone provider had ever planned for this scenario to happen.
Now imagine this scenario under full phone support automation. The system wouldn't even understand what I was trying to do. You could definitely argue that you could design some sort of scenario router that might handle a situation like this, but it seems unlikely that if they couldn't come up with a human process, I doubt they could swing an automated one.
Something like AGI could handle a problem like this, but it feels like we're dozens or maybe hundreds of years away from that.
Presumably they were meant to be real (inflation adjusted) return, rather than nominal.
And it's true that between 1880-1900, inflation rates tended to be low or negative (the latter is NOT good for an economy, BTW), but the rest of the 19th century saw highly volatile inflation rates, ranging from -15.75% to +24.75%, if this source is to be believed. Not great for long term investment.
> Walter Bagehot, the de facto founder of The Economist, was of the opinion that people will never stand 2% rates (and he meant plus :) ). They would rather fund anything, any project, the weirdest thing that offers any hope of yield; no matter how stupid.
That sounds very much like a description of the modern VC ecosystem.
> To phrase less trollishly: there aren’t a lot of good investments now, and even government bonds seem overvalued.
Yes, and a bankrupt pile of garbage is not one of them, as any even half-sophisticated investor would tell you. You don't need to be up to your neck in 30-years to know buying a bankrupt company is a bad investment.
This is honestly not something I thought I'd ever have to type out in words on a forum full of tech folks.
But even when you're gambling, why should you gamble by going long on an asset with a nearly guaranteed long term value of $0 rather than one with a neutral or positive outlook?
Sure, you may get lucky, but the odds are unfavorable all along.
> But even when you're gambling, why should you gamble by going long on an asset with a nearly guaranteed long term value of $0 rather than one with a neutral or positive outlook?
Because the odds on Hertz may actually be better than the odds in a Vegas casino and these people play that anyway?
Gambling odds are never in your favor--the house always wins.
Gamblers are always going into a situation where they are going to lose. The only difference with the Hertz situation is that if you can offload your stock to the next sucker before it tanks out, you "win".
I think they're more similar than you might think.
The only way you're going to make any money -- at least in real terms -- on government bonds is if interest rates go even more insanely low so you can dump them on another superoptimistic person.
Similarly, those who plan to buy the "IBO" shares are probably expecting to profit when some good news comes up and bumps up the price long enough to sell.
They're both built on the assumption of being able to dump the security on another sucker.
I get the tongue in cheek nature of this, but it is held up by fundamentally unsound assumptions from unsophisticated investors. bonds are much less boring than retail investors think they are.
Nobody is buying government bonds to beat inflation, nobody cares about the coupon payments. They are trading them on 10x leverage, its the price of the bonds that matter.
You can get 10x leverage on straight up 30 year bonds, and you can do way more in the bond futures market.
All you are doing is frontrunning the central bank. or going short. or trading options on bond futures.
and that's just US treasuries. other country's government bonds are interesting, and then the rest of the yield curve is full of fun quirks too.
This, the Hertz management know there's a huge disparity of knowledge/wisdom in the market and taking full advantage. SEC filings/proceedings as the regulation dictates (though it can seem tongue in cheek in the specific language), but on the other end are all the Robinhood accounts ready to 'invest' from the convenience of their respective mobile phones, enabled by a ridiculously low number of clicks/taps to open an account.
Their shares irrationally have value on the market, issuing equity allows them to pay off more of their debts. Why shouldn’t they issue, it’s the company’s job to release accurate information, not to force the buyers to make wise decisions.
If someone offers you millions of dollars for your totaled car you’d be a fool not to take it, this is no different. Hertz management must be loving this.
no, every broker has a lovely warning about the nature of sec regulations and financial instruments risk of losing value. Negligence is in the investors lack of due diligence. Its why publicly traded companies must publish financials and why cooking the books is illegal and fraudulent
That's not really how it works. You cannot do an equity offering if you believe there is a good chance the value goes to zero. And the "obligations" are merely a starting point in negotiations. A strong starting point, for sure, but not set in stone.
I find this disturbing, a corruption of the system, despite the disclosure, and despite that I personally like to read SEC filings.
Just telling people something is a scam is not enough, when the action of allowing it to go on implies that it must not be.
It's like, suppose you go to the hardware store and you buy a rake. And on it there is a label with the standard warning "this contains substances known to the state of California to cause cancer, etc.". So you buy it, take it home, and a month later you die horribly because it was radioactive or something.
You can argue about the percentage of guilt that accrues to the manufacturer, the store, the California lawmakers, etc. But it's not right to blame the victim, because when people get conflicting information, they have to disregard some of it, and you can't consistently go against the herd in such situations. It's necessary to have a level of trust that underpins the explicit language and gaming of rules that people engage in.
I know not to buy stock in bankrupt companies, but I don't think I'd be as dumb as the stereotype of Robinhood investors if I was naive enough to think, "well, they say it's worthless, but if the SEC allows it, it must not be a complete scam" and bought it anyway.
Your rake analogy is a little flawed, just because those "known to the state of California...." warning signs are practically everywhere. If they were actually rare, and this rake was the only thing in the store that had the sign, and the store was requiring a liability waiver to buy one, then you'd have a much closer analogy. In that scenario, given the multiple warning signs (including an actual, literal warning sign), I do think it's fair to say the purchaser holds some blame for being a dumbass. The legal system might say otherwise, but, if you do something that you've been warned multiple times is really, really dumb, by who should know you're about to do a dumb thing, then personal responsibility needs to accrue somewhere.
It's a matter of opinion on how much this warning stands out. I don't think there is going to be a special waiver to buy Hertz stock; the whole point is to be able to go directly to the public in an unrestricted manner.
But let's stipulate that in some sense the warning is rare and extreme, that doesn't affect my opinion. If a new Apple laptop came with a warning that violation of a license would result in earth falling into the sun, the severity and rarity wouldn't make you say "gee it really might happen". You might look into whether it was really from Apple, if it was a joke, what other people thought. If millions of other people were buying them, you would assume that it can't happen, because the validation of things people do overrides the warning regardless of severity.
Deceiving someone by telling them the truth in a situation where they are conditioned not to believe it is not a trick that somehow transfers responsibility. It's not better than directly telling a lie. It's worse, because it sets people up to believe the next lie after you've proven they were wrong to ignore the truth. It's like, I don't know, cargo cult morality.
I wouldn't believe for a minute this is ok to buy because I'm untrusting. But if I trusted the SEC or the laws and concluded this can't be a scam, because it would be illegal otherwise, then it's a mark of corruption and rot in society to punish trust in the system as stupidity or lack of responsibility. The very fact that it is being allowed creates genuine doubt in my mind about who to believe and what's going on, even though I would not make the decision to buy.
Let's say Wertz Car Rental IPOs tomorrow. Why would you go out of your way to buy something you know nothing about, instead of just ignoring it?
Answer: because you bought a broad market index and didn't expect the standards to retroactively drop and let it get stuffed with junk. This is how the economic crash of 2008 happened.
A broad market index fund is not realistically affected by Hertz at this point, because the market cap is minute and the index fund simply holds all (most) stocks in proportion. The index fund inherently doesn't buy more stock just because it's cheap, if it's cap weighted.
So, while I'm not sure exactly what you are saying, I've seen other comments where people are upset at their index funds being somehow disturbed and it seems like nonsense to me.
I guess this episode raises some questions about equal weighted index funds, but those are relatively rare.
Not to mention, I would think that even total market funds sell bankrupt companies. You have to have some standards.
But in any case, worrying about what Hertz does to your total market fund seems like worrying about what a bug on your windshield does to your gas mileage.
Good to know we can count on the SEC to bust small-time dentists who make $70K on options trades off insider info, and also rubber stamp financial maneuvers which are guaranteed to harm numerous retail investors like this.
If the ruling principle of our financial markets is going to be "caveat emptor" why don't we just disband those portions of the SEC which are supposed to vet securities offerings?
> The filing clearly states investors will lose their money.
So if I want to sell stock with a registration statement which says, "this is a Ponzi scheme and investors who buy in too late will lose all their money," that should be permissible?
Ponzi schemes are forbidden by law, so no that would not be permissible. It's completely legal to file for an IPO for a company when you have no business plan yet though. As long as you are open about what you intend to do and it's not illegal then the SEC won't stand in your way.
>So if I want to sell stock with a registration statement which says, "this is a Ponzi scheme and investors who buy in too late will lose all their money," that should be permissible?
If you make sure that investors are actually aware (e.g., you don't try to bury it in fine print), then I don't see why not, as long it complies with the gambling laws of the relevant jurisdiction.
I am a bit conflicted, but overall, if the description is fair and the disclaimer is clear, I would allow it. Lotteries ang gambling are legal after all.
I for one, will not miss hertz. They charged me 100$ for a baby seat, without even listing the price. Then, when I confronted them about it, they tried to deny responsibility by saying it was the billing vendor's fault even though they're the ones who received the money.
Came to say this. In 2019 I opted for Hertz instead of a cheaper local company because I wanted to be sure to get a proper infant car seat. They charged me something similar and when I went to pick up the car they had a toddler seat. I said that my baby is only six months old hello... the Hertz rep asked her friend from another company next door, who gave us an infant seat, albeit one that was like a weird reclined plastic shell (with the price tag still on it, worth $50!). I was super bitter at Hertz after that. We ended up going and buying a proper car seat for about $150 for our ten-day trip.
Agreed, I think this is the craziest investing story in my lifetime. Trying to find the HN link from last week about an article that said this was the 3rd type of bubble: type 1 is you expect the future to continue on with more of the present indefinitely, type 2 is you expect the future to be substantially different from the present, and this type 3 is the future just doesn't matter.
While the world is in a betting mood, I'm just going to bet my 2 cents on "I don't think this will end well."
Agreed, I think this is the craziest investing story in my lifetime.
I remember people buying off-the-market IOUs for bitcoins from people who had accounts on Mt. Gox at a significant discount after they had announced they were illiquid and couldn't find them lol.
The crazy thing is that people are still doing that with Tethers (USDT). They've admitted in legal filings that they only have 74% backing for them[1] and yet they continue to trade within 1 cent of par with the US dollar. Sometimes they even trade above par! It's madness.
The price of Bitcoin went up so much after the bankruptcy of Mt. Gox that the few bitcoins that were recovered were enough to pay off all their creditors (debts in bankruptcy are denominated in yen or dollars, not Bitcoin) and have a profit left over.
The problem with being a pessimist (your proverbial $0.02) is that if you are wrong, you miss out on the gains, and if you are right, it'll be hard to collect.
I'm a pessimist by nature, and I've learned this lesson the hard way. If it really does end badly, your $0.02 might be like the guy who shorted the German stock market right before WWII - there would be nobody with any money to pay off your short, and nowhere to go to collect it anyway.
(This is one reason that short-selling is so hard and there are so few that are good at it.)
That being said, if you're going to bet your $0.02, you might as well lever up because you're probably right. Darn - I just contradicted everything I just said. :)
I filled up with gas literally at the closest station (.1 mile away? You could see the lot from station). BOOM, charged for an empty tank. No worries, I'd actually kept my receipt from the gas station showing exactly when I'd refilled (2 minutes before dropping car).
It was an endless headache and run around to try to get them to cancel out the charge. That kind of run around should be illegal.
I normally used National (because you can pick any car on their 'aisle') and never had that issue with them.
I think the problem is the franchisees that operate the locations. There are a million stories out there of scamming people. Especially at airport locations where they know the person returning the vehicle is likely to be in a rush and not live in that location. It's more of a hassle for you to return and fight for something.
I had a rental company claim I "totalled the right front side of the vehicle" and had $3000+ in damages. I asked for dated photos of the damage and all of a sudden the claim of damage went away. I always take a dozen or so photos of the car before and after I drop it off. Takes 2 minutes but can save a ton of time and money down the road.
Same for apartments if you want any hope of fighting bogus claims on security deposits.
For some reason all the contracts I've seen want a written description of damage. That just isn't enough. Take photos of everything you find before you move in and include them in the statement of the state of the house.
Just file a chargeback for this kind of thing. If you got charged for something and "did not actually receive the goods/services" (in this case a convenient gas fill up), then this is exactly what they were designed for.
Of course, you have to ask for a refund first, but after doing so, skip the hassle and just charge it back.
They'll have to pay additional penalties, which discourages this kind of behavior in the first place.
I lost my keys one time, called the rental office and asked for another set. They told me that no backup set was available under any circumstances. I was forced to do without a car for 3 days, then called them and told them to pick up the car because I couldn't drive it back to their office. Their form of apology was to knock a day off the rental charge.
Agreed. Actually just returned a nice jeep cherokee this morning back to Hertz. Had it for a week out of their Newark airport location. $240 for the whole week! The return lines were completely full from people who rented during the weekend. Had to take the airtrain over to the terminal to get an uber, airport was eerily quiet. Hopeful that things will pick back up once we get a vaccine.
I am a Hertz Gold member, which is a free program like flight miles. However, being a gold member, you can skip the counter and pick up your car (sometimes you have to go to the 'gold counter' if your flight is delayed, etc). It's always a quick and painless experience. Definitely saves a ton of time if you travel frequently. I'll often pay a little bit more because I like their service (crazy, right?)
I'm really disappointed in Hertz going bankrupt. Hopefully their operation can continue, I really enjoyed using them.
Same, used them for years for business travel. Painless in every way.
Check out was easy, about 2 mins at the gate. Check in was parking the car and walking off from the garage to the Airport terminal. No need to do anything.
Avis/Budget have a similar program. I've always found Budget to be cheaper than competitors. I'm amazed every time I rent that more people aren't savvy to Fastbreak. It is very convenient!
What's the program they ran that had an annual fee?
They really catered to the business traveler market and if your membership was paid for by a corporate account then their unstated, unofficial policy was that if you could return a car under its own power you'd never be charged for damage.
My wife was a consultant for a construction company many many years ago and had at least 3 cars totaled from being parked near construction sites. She once drove a car with a flat tire for nearly 20 miles to avoid missing a flight. Hertz never batted an eye.
There used to be a program called #1 Club Gold that nominally had an annual fee. A company I worked at in the 90s got free lifetime memberships for all employees as a perk for making Hertz their preferred agency so even after I left that company I remained a member. The main benefit was the shuttle buses dropped you off in that part of the lot first and you could just get in your car and drive off without waiting in line. At some point in the 2010s that got merged into the current Gold Plus program.
I do the same, with National's Emerald Club service. It sounds fancy but anyone can sign up for free membership. I used to be so paranoid about taking photos and videos of the car at the start and end of the rental, but have gradually transitioned to parking the car and walking right off to the terminal since all my experiences have been so painless. I do have a corporate code from my employer on the bookings (one of business travel and one for personal travel), which probably doesn't hurt.
I had my one car accident ever in a Hertz vehicle. No injuries, no other car involved, but the vehicle was damaged to the point it couldn’t drive. I had full coverage and they replaced the car and had me out the door in 30 minutes. Zero extra charges. Hopefully I never end up in an accident again but it was unbelievably stress free given the circumstances. I would definitely work with them again.
The bad: charged for a full tank of gas and a filling fee despite me filling it immediately before returning it. I didn’t keep the receipt or take a photo, mea culpa. Worked out as something crazy like £4 a litre, with the fee.
The terrible: prepaid rental, pick up at one airport, return to another - paid the fee for the one-way up front. Was slightly bemused when the car they gave me had clearly come from where I was going, so I was paying €160 to do them a favour. Where it got terrible: the office at the airport I dropped the car at was unattended. It was meant to be open, but wasn’t - so I used the key drop and caught my flight.
They then charged me €4500 for extensive bodywork damage - two new doors, new mirror, new panels, new glass, etc. - the car was immaculate when I’d left it, and from the photo it looked like someone had t-boned it in their lot - broken glass on the ground around it, etc.
I had a walkaround video from when I dropped it off, showing no damage - but they pointed me at the section of the rental agreement that says that if I use the key drop I accept all responsibility for damage to the vehicle between me dropping the keys and them inspecting it. I didn’t have a leg to stand on.
To add insult to injury, they also charged me the one-way fee, again.
Needless to say, I never used them again after that.
I find the car rental process really difficult in Europe. It seems they are just looking to get you and give the most detailed possible inspection of cars. In the USA I have found when I return a car they just really look at it for major damage and that's it. So I avoid renting a car in UK or other European countries, and if I do I don't just sign when they try to show me the iPad pics of known damage. I want to inspect that car as detailed as they do because I know it is coming back the other way when I return.
As much as I dislike Enterprise (UK) for many other reasons, I can't complain about their approach to damage. I've gotten away with the most amount of minor damage with Enterprise.
I have a similar story. Did a one way rental and drove from Seattle to Portland, but the returning location was open when I returned the car. Did the whole walk around of the car with the Hertz employee and everything was fine. Then I get a call a couple hours later that there is extensive damage in one of the wheel wells that I will be responsible for. This was ridiculous because not only was I sure I did not do anything that would have caused that damage, but their employee inspected everything and signed off. Pretty clear that one of their employees damaged the car moving it around the lot and was hoping to pin it on me. After numerous calls with the rental offices in both Seattle and Portland, they finally agreed to "do me a favor" and drop the claim. How nice of them!
I have rented from Hertz about 15 times and from Enterprise about 20 times. Price is about the same, in my experience.
I will never go anywhere near a Hertz again. The prices were about the same and every single aspect of the Enterprise experience is better. If you damage a Hertz vehicle, even with insurance, god help you. With Enterprise it's no hassle at all.
I once had Hertz try to change the price on a pre-paid rental at the counter. When I tried to show the counter guy my existing receipt with a different price he turned his eyes up to the ceiling and said "I'm not looking at that." Like a child.
After years of rentals, I've really only ever had consistently good experiences from National/Enterprise.
I vowed off Hertz 6 years ago. It was around midnight after a long flight, my phone was dead and I had a rental booked from another company.
I was thrilled to see that the Hertz rental counter had a large box of car chargers with a label "$8.99" or something reasonable. So I walk up and ask to please buy one.
The person behind the counter looks at me in disbelief "No, these are for customers only. We're not a convenience store. Go find a Seven Eleven if you need a car charger."
Six years and $10,000+ in business rentals later, I've still never rented Hertz again. Customer service matters.
Next time just tell them you left one in your last rental and it might be in lost and found (unethical life tip).
I left a Canadian National Park Pass in a rental car once ($120/yr, covers admission to park). I went to the rental counter and asked if they had it. The attendant asked me what month it expired and he pulled out a box with probably 500 park passes and found one with the month. I suspect many people fly into my city (Calgary), rent a car to visit Banff and the annual pass is cheaper than the daily rate for vacation. When they fly home (to another country) they have no use for the pass anymore so they just leave it in the car.
75% of the time I rent with Hertz, I get a car that reeks of cigarette smoke mixed with whatever cloying odor they put in to try to overpower the smell. I don't know what National does differently, but their cars just don't smell as much. And if one does I just skip it and get the next one on the aisle.
Few things could symbolize "the YOLO Stock Market" better than the successful issuance of worthless stock by a company that is already in bankruptcy after it has explicitly warned in the prospectus that its stock is worthless unless there is an "unanticipated improvement in business conditions."
Boring details such as "how much is this worth?" or "does it have any value?" or "who gets what in this bankruptcy?" are evidently irrelevant to the buyers of the stock, who must be trying to "beat the gun," as J. M. Keynes described it nine decades ago[a] -- or maybe they just want to burn money with reckless courage and abandon as a novel form of conceptual performance art?
Just wait until PCG exits bankruptcy this week! It'll probably get swarmed by investors trying to "buy the dip", even though the shares are very diluted now
By consolidating equity you can influence the direction of the company and push it to a liquidity event, that’s not worthless. It also has value as a bet on the future occurrence of a liquidity event.
Has it actually filled the offering? The title says it has, but the link is to the prospectus, which merely must be available before they begin at the market offerings.
There is no indication I see that this title is correct and that Hertz has sold all $500 million of the ATM stock offering.
A $2 put for Jan 22 is currently trading with a 1.60-1.75 spread, meaning the break-even point is $0.25-0.40. Not much reward to have there. No shares available to short either.
That's the thing - tough to know how long a bubble lasts for. And choosing a time horizon based on the court system is difficult because bankruptcy proceedings can drag on for a long long long time.
Selling call credit spreads has been wildly profitable for me, especially when the stock was around $5. If it runs back up again, I'll probably sell more.
With this methodology you get the upside of likely decline in price without having to pay the massive premiums for puts.
I get your point, but you chose a really bad example. A properly underwritten insurance policy never has any theoretical upside to anyone except the insurer. Premiums should also theoretically be close to proportional to the actual risk. Your grandma's premiums would be very low, but, unless a tiger escapes somewhere near her, she'd never be able to collect. And, any reasonable policy would have specific exclusions for willingly and knowingly going somewhere that tigers are native. :P
It's a nearly guaranteed loss, and and pretty much the only people who will invest in it are those that are too incompetent to realize that. It smells like a legal con to separate those people from their money.
If you watch CNBC, the common theme is that "Robinhood traders" are buying/selling hertz (despite its near $0 actual worth) in a gamble for short term profits.
Much like people buy/sell crypto with zero analysis of fundamentals.
I don't think it's a bad decision for Hertz to offer up shares if it allows them to repay a greater percentage of their debt.
I think the real problem is that there are a lot of people who are speculating (gambling) in stocks like Hertz. This has been the case since online brokers came in to existence, and has only been magnified by the recent trends toward $0 fee commission trades pushed by Robinhood and the like.
If there is anything that I'd say needs to change, it would be apps like Robinhood should make detailed company information more easily accessible so people realize Hertz is going to $0 before gambling on a short term swing (which would mean making the UI/UX a bit more clunky + dense, so it probably won't happen)
I don't hate it. The Hertz proposition is quirky and strange, but it's fully out there as well. These risk paragraphs are fun to read because they're ment to be a clear warning of what could go wrong. Not too much CEO-speak allowed, because if you cover up and mess up, you'll get sued. This filing, or say the WeWork IPO are in my book good examples of a part of financial regulation just working.
IANAL, but when you sue the bankrupt company for going bankrupt, the same judge that allowed the IPO will be the one to look at your lawsuit accusing fraud. Seems to me like he’d toss the claim and it would be discharged through bankruptcy.
There's no hate on the offering itself. Hertz would be negligent if they didn't tap a source of interest free funding at the lowest position in the bankruptcy repayment. They saw the demand for their stock and took advantage.
The hate is on the "investors" yes but I don't hate them. It is just that if they really thought auto rentals were going to rebound there are plenty of other opportunities out there that are currently not bankrupt. But hey, they aren't "99% off" like Hertz is.
However, as long as someone isn’t betting their life savings on this I don’t see or take any issue with it.
...
Thai Gaon, a 23-year-old salesman in San Francisco, bought 35,000 Hertz shares on June 4 at $1.43, spending a little over $50,000, according to documents viewed by The Wall Street Journal.
“It was my entire life savings,” he said. “I decided, you know, if I’m gonna do it, I should do it big, and I’ll make a play and see what comes out of it.”
Yeah, I tend to agree. This kind of deal with extreme and ridiculous risk is exactly what accredited investor rules are supposed to mitigate - but because Hertz is a public company they don't apply.
> shrug And people jump off bridges. Doesn't mean we stop building bridges. The market is rough, them's the rules, sorry not sorry.
But it also doesn't mean we can't put barriers on those bridges that prevent people from jumping off. A rule preventing a company from selling stock when it's pursuing a bankruptcy would be just such a barrier.
Risk is an integral part of the market. Why should people be prohibited from taking risks? I could probably get behind preventing people from taking extreme risks--those that would likely make them dependent on our social safety nets--but why prohibit people from putting a few bucks into a high risk investment (which is what you're doing if you prohibit the sale of stock in companies pursuing bankruptcy)? Even if you're 23 and betting your life savings, you still have an income and retirement account and a lot of working years left before retirement.
You're just rephrasing the original argument, not rebutting my proposal. So I ask again: why prohibit everyone from taking reasonable risks when it's perfectly feasible to prohibit only high risk investments (i.e., those risks that would be financially ruinous i.e. put the investor on social support)?
> So I ask again: why prohibit everyone from taking reasonable risks when it's perfectly feasible to prohibit only high risk investments (i.e., those risks that would be financially ruinous i.e. put the investor on social support)?
1. These risks aren't reasonable.
2. It's practically simpler to ban this kind of weird and sketchy offering entirely than to implement some kind of control to limit the impact of what people can lose on a particular investment.
1. There's nothing unreasonable about someone investing their own money on whatever odds they want, provided the upside is proportional to the risk and if the investment goes badly it's not financially ruinous (where "financially ruinous" means "the person becomes a burden on welfare system" or similar).
2. It's marginally simpler but enormously restrictive. If I want to invest $100 for a potential thousand-fold payout, why can't I? I can legally spend more for worse odds (and a worse payout) on any number of institutions (casinos, lottery, etc). When you say "sketchy and weird" you just mean "a different risk profile".
> There's nothing unreasonable about someone investing their own money on whatever odds they want, provided the upside is proportional to the risk and if the investment goes badly it's not financially ruinous
Why stop there? Why not let Ponzi schemes operate unimpeded? After all, if you pull your money out of the scheme early enough, you could profit handsomely. Why not let people take that risk?
>> when it's perfectly feasible to prohibit only high risk investments (i.e., those risks that would be financially ruinous i.e. put the investor on social support)?
> It's marginally simpler but enormously restrictive.
All right: please submit a notarized accounting of your income and assets, so that the bureaucracy can evaluate it and decide if it's acceptable for you make this investment. We'll get back to you in 6-8 weeks with the decision.
> Why stop there? Why not let Ponzi schemes operate unimpeded? After all, if you pull your money out of the scheme early enough, you could profit handsomely. Why not let people take that risk?
To be clear, you think Ponzi schemes are illegal because they are too risky?
> All right: please submit a notarized accounting of your income and assets, so that the bureaucracy can evaluate it and decide if it's acceptable for you make this investment. We'll get back to you in 6-8 weeks with the decision.
I don’t understand the snark. That’s less involved than getting a permit to remodel your kitchen and the government already has information about your wealth anyway.
Anyway, I don’t understand your argument: “it’s too easy to make risky investments and if you make it harder it would be too hard so we should prohibit it altogether”
Because then we are implicitly responsible through social services for the idiots who gamble away their life savings with margin trading as an advanced form of gambling addiction. It's not just 24 yo doing it, it's also 55yo doing it with their life savings. I remember my previous landlord complaining about her ex-husband doing it decades after the fact and it's the reason why they split.
Requiring a pilot license level of education for margin trading & gambling past a certain point (like $1k) is making more and more sense as time goes on.
A local businessman in our area began day trading and options trading. Soon was fudging the books and lying to corporate about inventory. They soon came and locked up the joint, hauled him to jail and his family had to sell out to make up the losses. They'd owned a huge mansion and estate outside town - now its a development.
He was in his 60's, been a rock in the community and nth generation in the family business.
I'm not in favor of loosening the rules on who can trade risky investment.
I addressed all of this in my post already. This doesn't support the idea that we should prevent companies from selling stock when they're pursuing bankruptcy. It does support the idea that we should prevent people from taking risks that will likely land them on social support (which does not apply to the 23-year-old scenario above or even the 55-year-old scenario provided the couple had enough in retirement to keep them off of social services). Note also that none of this is incompatible with a licensure program.
That’s an impressive savings for a 23yo. Imagine all the work and discipline going into it. I wonder how much work and discipline he put into betting on Hertz.
And Hertz of all companies. My experiences with them have been uniformly awful; they always try to charge me for insurance or services which I explicitly decline, and their customer support is openly hostile. I'm sure they were a competent company at one point in time, but betting your life savings on a company that is apparently surviving on fraud is bold.
But all of that shitty behavior is actually good for the shareholders (in the short term) they were essentially seeing how much you could abuse captive and or ignorant customers.
I don’t know why so many commenters here seem to want to prevent people like this from speculating/investing how they want. His risk tolerance is larger than yours and he’s arguably making a very stupid investment, so what?
It's like having to wear a helmet when you ride a bike, you might say why does the government cares, it's my life after all.
But the problem with this logic is that if you fuck up hard enough you effectively become a liability for society. You'll hit the safety net and tax dollar will be spent helping you recover. And that's a good thing in my opinion, but because of this we can't just watch people going "YOLO" and putting themselves in extremely precarious situations and say nothing.
If the guy ends up on food stamps, society will pay for those. It's therefore in society's best interest to prevent this insane risk taking.
Who decides what is risky enough to warrant that? Your example with bicycle helmets is a perfect example, helmet usage is not correlated with less bicycle accidents/injuries. The greater risk is that people choose a car just because they do not have a bicycle helmet, considering long term health should be a part of it.
The hate is that it’s a hugely risky investment that Hertz is knowingly marketing to unsophisticated investors who don’t understand the offering enough to fully appreciate the risk and who aren’t in a financial position to absorb this kind of risk even if they do appreciate it.
It’s a money grab. The second the stock is issued it’s basically worthless and Hertz knows it. But when these investors are inevitably screwed over they’ll basically have no recourse against Hertz so why not?
> I don’t get the hate on this offering. It’s a huge gamble for sure, but the upside is there if they pull it off.
Disclaimer: I'm basing this comment on rough memories of undetailed news coverage.
That said, the impression I got was that Hertz asked the bankruptcy court for permission to issue $1 billion of stock while needing ~$3 billion to pay off its creditors. This makes no sense to me. The right thing to do would be to try to sell $3 billion of stock. In that case, the path to non-failure is obvious. Here, failure isn't just the most likely option; it's also the plan.
(Would issuing so much new stock wipe out pre-bankruptcy stockholders? It might, but so does the bankruptcy.)
The only reason it's happening is that the regulators have been gelded and there is no reason not to. Adam Smith's invisible hand has been replaced by a dirty glove giving the public the finger.
Pull what off? The company is bankrupt, the equity will be wiped out, they literally say that in the filing:
"Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions"
No one is "putting their nose to the grindstone" to save the company. The money is going to the creditors.
Equity "going to 0" is a consequence of a court proceeding called "bankruptcy". It is the courts of law that approve the deletion of equity. So not sure whom are you going to sue.
It will not go to $0. It will simply stop existing. You are free to trade it until then.
Lots of companies enter bankruptcy, are restructured, and emerge from the process without equity being destroyed. There is certainly some chance that happens here.
PSA: Hertz stock is already worthless. The only thing keeping it afloat are retail investors that keep piling in. They are pretty much guaranteed to lose money holding it.
This highlights something that I've always found confusing about the stock market. The traditional CAPM assumes stocks are priced based upon discounted future cash flows. But yet, we have many stocks which have an extremely high liklihood of never returning capital to investors: stocks which are likely to never buy back shares nor issue dividends. And yet, investors price them as if that capital will be returned to investors. There does seem to be something fairly unexplainable about stock valuation by the market. Perhaps this finally reveals something more to it.
That's because CAPM isn't the only way to price stocks. Some stocks can be priced like options, if they have contingent cashflows. Consider a biotech startup with a product coming to market. If they get FDA approval, that company is probably worth a lot! But if they don't, it might be worthless. Similar for an oil & gas company drilling for resources in a new area.
I still think this is a smart move for Hertz. A loan comes with an interest rate and repayments. A new offering is just cash minus the fees. It's "free" in terms of future obligations.
If this "IBO" gives Hertz the breathing room to restructure, clean up, and come out the other side, then well done. If not, no one will be surprised. It's a "no lose" scenario for them.
As an investor, nope. If it drops down to penny stocks, I'll go "all in" with the $6 I can't transfer out of my Etrade account but not willing to consider anything real.
I see a virtually 0% chance that Hertz emerges from this as the same legal entity as when they went in.
That said, I have witnessed several corporate miracles within the last decade, and I am hesitant to dismiss these sorts of herculean efforts. Perhaps they are grasping at straws, but maybe someone knows something I don't. I usually default to the latter assumption when dealing with matters this complex. Keep in mind that when people are up against the ropes and running out of options, the amount of innovation that occurs can start to skyrocket. Nothing is out of bounds anymore. Everything becomes an option.
As a result, I have bought an incredibly small # of shares in the extremely unlikely event that Hertz does emerge from this a viable company. If those shares evaporate into nothing tomorrow, I won't lose any sleep over it.
In other words, this is the stock market equivalent of "hot potato". The retail investors buying on robinhood are doing so because they're betting they wont be the last one holding the chips.
Weren't the airlines insolvent just a month or two ago, before they were bailed out? Can we confidently say that there is a 0% chance for a deus ex machina intervention that will bring the equity back into play?
I'm not suggesting that buying into this offering is a good idea or that bailouts are a good idea. However, given recent experience, assigning a > 0 price to Hertz equity is not irrational.
https://news.ycombinator.com/item?id=23517270
reply