I'm glad to see Southwest Airlines shaking up its board; The Andrew Left indictment is unsettling other short sellers; Tether is 'fueling the financial underworld'; Greetings from Warsaw
1) The management shake-up is happening at Southwest Airlines (LUV) – and that's a good thing...
Regular readers will recall that in my August 28 and September 3 e-mails, I discussed the company's struggles and the pressure it was under from activist shareholder Elliott Investment Management. As I said on September 3:
I think Elliott is right that there is no reason, other than poor management that refuses to change, why Southwest – the largest domestic airline by number of passengers – should be underperforming its peers so badly.
So it's good to see Southwest give in to one of Elliott's key demands, as this Wall Street Journal article noted on Tuesday: Southwest Airlines Overhauls Board Amid Activist Pressure. Excerpt:
Southwest Airlines Executive Chairman Gary Kelly will step down next year in a big board shake-up as the airline faces pressure from an activist investor to overhaul its leadership and business strategy.
Kelly, who has worked at Southwest for nearly 40 years, said he would voluntarily retire after next year's annual meeting. He served as Southwest's chief executive for about 18 years and has been its board chairman since 2008. He left the CEO role in 2022 to become executive chairman...
Six other Southwest directors intend to retire in November as the airline looks to refresh its board. Southwest said it would appoint four new directors in the near future and would consider filling as many as three of those spots with candidates from the slate Elliott put forward last month.
Now it's time for CEO Bob Jordan – another one of Elliott's leadership targets – to go...
2) Regular readers will no doubt also remember that I wrote about the government's indictment of famed activist short seller Andrew Left in my July 26 and July 29 e-mails...
My biggest concern was that, irrespective of the merit of the government's case, the situation would deter other short sellers from going public with their work.
And this unfortunately appears to be happening, according to this New York Times article from earlier this week: Criminal Charge Against Outspoken Short Seller Unsettles Wall St. Excerpt:
The charges have also unnerved other activist short sellers. Some suggest Mr. Left became an easy target given his public profile and because short sellers are sometimes seen as a scourge on Wall Street, where most investors like to see stock prices go up instead of down.
Companies targeted by short sellers often push regulators and lawmakers to go after the investors, who say they feel unfairly maligned. The charges against Mr. Left appear to take issue with common practices by activist short sellers. Some have said they are considering revising their disclosures about trading policies.
This paragraph captures my view perfectly:
Short sellers say they help keep markets in check, particularly during times of over-exuberance, when investors may overlook company fundamentals as share prices climb. Activist short sellers often compare themselves to investigative journalists, performing a valuable service by calling out frauds and digging up dirt.
3) It has been a year and a half since I've warned my readers about cryptocurrency "stablecoin" Tether (archive here)... but the concerns I expressed over more than a dozen e-mails haven't gone away.
And now they're back with a vengeance after reading this in-depth WSJ article: The Shadow Dollar That's Fueling the Financial Underworld. Excerpt:
A giant unregulated currency is undermining America's fight against arms dealers, sanctions busters and scammers. Almost as much money flowed through its network last year as through Visa cards. And it has recently minted more profit than BlackRock, with a tiny fraction of the workforce.
Its name: tether. The cryptocurrency has grown into an important cog in the global financial system, with as much as $190 billion changing hands daily.
In essence, tether is a digital U.S. dollar – though one privately controlled in the British Virgin Islands by a secretive crew of owners, with its activities largely hidden from governments.
As the article continues, Tether has spread through the financial underworld:
Known as a stablecoin for its 1:1 peg to the dollar, tether gained early use among crypto aficionados. But it has spread deep into the financial underworld, enabling a parallel economy that operates beyond the reach of U.S. law enforcement.
Wherever the U.S. government has restricted access to the dollar financial system – Iran, Venezuela, Russia – tether thrives as a sort of incognito dollar used to move money across borders.
Russian oligarchs and weapons dealers shuttle tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela's sanctioned state oil firm takes payment in tether for cargoes. Drug cartels, fraud rings and terrorist groups such as Hamas use it to launder income.
In light of this, I hope the U.S. government cracks down on Tether – ideally banning it completely.
As a result, my view that anyone holding Tether is taking a huge risk hasn't changed... but the primary reason for it has. I no longer think it's likely that the operators of Tether are taking the hard currency they receive in exchange for Tether and stealing it or investing it recklessly – there's no need to do that when they can earn 4% to 5% risk-free.
Rather, the risk is that one day, the U.S. government, perhaps in coordination with allied countries, suddenly makes Tether illegal, and, instantly, any American holding it can no longer access their account (which has become worthless).
I spent a few hours here recently, touring the beautiful, historic old town:
It was lovingly restored after the Nazis destroyed it in the summer of 1944 to punish the Poles for the Warsaw Uprising by the Polish underground resistance. This is what it looked like after the war (the bottom picture is of General Dwight Eisenhower in the old town on September 21, 1945):
I've studied the Nazi oppression of the Jews closely (in part because my wife and three daughters are Jewish), so I was hoping to visit the POLIN Museum of the History of Polish Jews while I was in Warsaw. Unfortunately, it was closed the day I was there.
The museum is located on the site of the former Warsaw Ghetto, the site of the largest single revolt by Jews during World War II, in April and May of 1943.
However, I did see an exhibit about the Warsaw Ghetto Uprising in the Warsaw Museum (the small picture in the upper left shows what was left of the ghetto afterward – nothing):
I highly recommend visiting Poland – I've been here five times in the past 18 months. In addition to Warsaw, Krakow is magnificent and, if you're there, you must visit the nearby Auschwitz-Birkenau State Museum on the site of the infamous Nazi concentration camp.
By coincidence, I just got an alert about a fare sale by LOT Polish Airlines, which has the only nonstop flights from New York City to Warsaw. I saw that roundtrip flights are as low as $474 from October through March!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.