Enrique Abeyta's brand-new presentation; Bed Bath & Beyond Got Its Deal Done; Am I too harsh on Elon Musk and/or too political?; My reply; Disrupting the World's Largest Asset Class with Adam Neumann; Two cool pictures
1) My colleague Enrique Abeyta just released his latest presentation...
In it, he covers one of his all-time favorite trading strategies – one that works best in a market with lots of uncertainty, which is likely what's in store for 2023.
In short, it's a way to make consistent profits each month – while taking on less risk than buying stocks outright.
According to Enrique, it's a strategy that you absolutely must know given the state of the markets these days... Watch his presentation here.
2) After doubling on Monday and getting cut in half on Tuesday, Bed Bath & Beyond (BBBY) fell another 13% yesterday as investors digested the deal the company struck with a consortium of hedge funds, led by Hudson Bay Capital Management.
Simply put, the company gave the hedge funds the right to, as Wall Street insiders say, "rip the faces off" of retail investors, in exchange for a lifeline that lets the company avert an immediate bankruptcy and likely liquidation. Bloomberg columnist Matt Levine gave a fuller explanation in his daily yesterday: Bed Bath & Beyond Got Its Deal Done. Excerpt:
... the best way to understand this deal is not that Hudson Bay and friends are long-term equity investors in Bed Bath, but that they are planning to buy stock from Bed Bath at a substantial discount to the market price, and then turn around and sell it into the market. The investors paid Bed Bath about $225 million for $237 million face amount of convertible preferred stock (that is, they got a 5% discount): Today, that $237 million of convertible preferred stock is convertible into common stock at a conversion price of $2.3727. That means that the investors could convert one $10,000 preferred share – that they bought for $9,500 – into 4,214.6 shares of common stock. The stock closed yesterday at $3.01; it was trading at about $2.58 at noon today. The investors could sell their 4,214.6 shares today for about $10,873, for a $1,373 profit on their $9,500 investment, a 14% return in, you know, a day...
... the simplest explanation is that Hudson Bay has committed to paying Bed Bath roughly $1 billion, over the course of the next year, and in exchange Bed Bath will give Hudson Bay stock that it can sell into the market, over time, for considerably more than $1 billion. In a sense Bed Bath could do this itself, and avoid paying Hudson Bay a huge expected profit for acting as a middleman, but:
- Hudson Bay thought of it and Bed Bath didn't! Worth something.
- It is awkward for a company to try to dump $1 billion of stock directly on retail shareholders while it is close to bankruptcy; having Hudson Bay as a middleman gives a bit more distance.
- Bed Bath is, over time, frequently going to have material nonpublic information that would prevent it from selling stock. Hudson Bay's involvement solves that problem: Hudson Bay won't have any material nonpublic information, and each time it exercises some preferred stock it will get shares that it can sell immediately.
3) I wanted to share my reply to an e-mail I received yesterday from someone on my Tesla (TSLA) e-mail list because I suspect his thoughts are shared by quite a few other readers...
He wrote:
I have never owned a share of TSLA nor would I buy any unless the shares dropped to a multiple in the 20's. I do believe Elon Musk has done amazing things that NO ONE initially believed would succeed. He has made thousands of investors huge abnormal returns. I will not be surprised if he turns Twitter into a profitable company despite overpaying. We all know he is "different."
Having said that: As a subscriber, the constant "Musk bashing" is getting tired. It feels like politics is getting involved here and when that happens I lose interest real quick. I know many people feel much the same. I believe investors are looking for ideas not political beefs. If I have to continue to sort out content from politics I will move on from Empire.
I replied:
Thanks for the feedback, though I think it's mistaken.
My Musk/Tesla e-mail list is different from my investing dailies – it's an unofficial, unedited, personal list that I started sending to friends many years ago. As a courtesy, I opened it up to the 140,000 folks who get my dailies and 4,200 signed up. Anyone who decides they don't like it can simply unsubscribe at any time.
As for Musk, are you new to this list, or have you simply forgotten all the praise I've heaped on him when deserved (e.g., "humanity owes him a debt of gratitude")? That used to be quite often... But then some combination of factors – likely including becoming the richest man in the world and making the disastrous decision to buy Twitter – caused him to totally run amok, so I have been (correctly) calling out his bad behavior.
Rest assured I will continue to do so if he continues to behave like a wicked and spoiled child. If that causes you heartburn, then please unsubscribe, as I like to make my readers happy (while also occasionally making them spit up their coffee)!
My views on Musk have nothing to do with politics. If he were embracing the socialist lunacy of The Squad, I'd be writing the exact same things about him.
For example, I have no problem with Musk allowing Trump back on Twitter. What I do have a problem with is him: a) making nuanced decisions like this in a seat-of-the-pants way; and b) firing nearly everyone involved in overseeing what's posted on the site, such that white supremacists and child sex predators run amok (see Use of N-Word on Twitter Jumped Almost 500% After Elon Musk's Takeover, Why is Elon Musk's Twitter takeover increasing hate speech?, and the article I linked to in my original e-mail, Musk Pledged to Cleanse Twitter of Child Abuse Content. It's Been Rough Going).
Lastly, I'd like to think the reason people read me, at a time when we're all drowning in endless content, is not only that I spend hours a day reading and selecting the best stuff to share with my readers, along with insightful commentary, but also because I don't pull my punches in an attempt to please everyone.
There are two reasons for this: first, that's the way I've always been – just ask my mom or my wife! Secondly, it's good business. If I had to choose between x readers who love me and 10x readers who don't and unsubscribe, versus 5x mildly engaged readers, I'll take the former all day long...
Again, thanks for the feedback and giving me the opportunity to reply.
Best regards,
Whitney
(If you'd like to be added to my Tesla e-mail list, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com.)
4) Speaking of part-visionary, part-lunatic business leaders (though in this case it's far more heavily skewed toward lunatic)...
Adam Neumann, the infamous founder and former CEO of WeWork (WE) – which I correctly warned my readers to avoid (WE shares closed yesterday at $1.70) – recently spoke for the first time about his new venture: a residential real estate company named Flow. Neumann appeared at the American Dynamism Summit in Washington, D.C. in November, an event hosted by Marc Andreessen's venture capital firm a16z, which invested $350 million in Flow.
You can watch the entire 53-minute video, including a transcript, here: Disrupting the World's Largest Asset Class with Adam Neumann.
Here's a Bloomberg article about it: Adam Neumann Says His Apartments Will Make Tenants Want to Plunge Their Own Toilets. Excerpt:
Neumann had remained tight-lipped about what Flow actually does ever since Andreessen Horowitz invested $350 million in August. Flow will own and operate multifamily residential apartment buildings and has plans to debut in cities such as Atlanta; Fort Lauderdale, Florida; Miami; and Nashville, Tennessee. Even in the new video, which runs for more than 50 minutes, Neumann is coy about core aspects of the business, such as how Flow will simulate ownership for tenants while maintaining control of the buildings.
The idea of monetizing "community" was a major selling point of Neumann's last business, WeWork. Although he was ousted as chief executive officer of WeWork in 2019, he hasn't given up on the notion. Flow's goal, he explained, is "to find a way to share with the resident a portion of the value that they create." That value "is going to make them feel ownership. And it's not just ownership – 'I feel like I'm part of something' – it's 'I actually own part of something.'"
Neumann quickly added that "the word ownership is a very complicated word." But, he continued, "if there's perceived value and if that value appreciates over time, then I feel like I'm part of a community."
Neumann appears to have learned nothing from the WeWork debacle, as he used every buzz word imaginable to try to cover up his ridiculous ideas. For example, his rationale for Flow's planned financial arm is that it will have a financial relationship with tenants because they'll be paying rent (I'm not making this up)!
5) After we returned home from Switzerland on Monday night, I did a day trip to Houston on Tuesday, leaving LaGuardia at 6 a.m. and getting back at 10 p.m. (which I'll admit is pretty extreme, even for me)...
Check out these two cool pictures I took just after takeoff over Houston and the approach over New York City...
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.