Thank you, Adam Aron... My go-to sources for unbelievable moments... Popcorn, candy, wine, and beer... Should the 'apes' put a robot in charge of AMC Entertainment?... Stirring up 'some AI magic'... Let ChatGPT do your earnings calls... The art of 'diworsification'... Learning a lesson from greedy CEOs...
Thank you, AMC Entertainment (AMC), for delivering once again...
I (Dan Ferris) have written more in the Digest about the beleaguered movie-theater operator than any other company. (See for yourself here, here, here, here, and here.)
Sometimes, at the start of the week, I'm still not sure what I'll write for my Friday Digest. But I know I can always turn to a few sources for their ability to consistently deliver stuff I can barely believe.
AMC Entertainment is at the top of the list. And regular readers know that Bed Bath & Beyond, Cathie Wood, and potential MMA fights between CEOs are all on the list as well.
When it comes to AMC Entertainment, who can blame me?
The company looked like it was headed for bankruptcy in early 2021.
That's not an exciting story. Bankruptcies happen all the time. But then...
Small speculators started posting on Reddit about "meme stocks." They created a huge "short squeeze" in AMC Entertainment, Bed Bath & Beyond, GameStop (GME), and others.
As a result, AMC Entertainment's share price soared 31-fold in the first five months of 2021. In a particularly zany stretch that ended with its peak on June 2 of that year, it rose more than 400% in about two weeks.
Keep in mind that lockdowns during the COVID-19 pandemic utterly decimated the cash-burning company's business. And yet, its market cap briefly hit $30 billion in June 2021.
AMC Entertainment's stock quickly retreated from those insane highs.
But the company maintained a multibillion-dollar market cap long enough to sell billions of dollars' worth of new common shares to its unsuspecting shareholders (who call themselves "apes")... and to invest $28 million in March 2022 for 22% of Hycroft Mining (HYMC), which owns a shuttered gold mine in Nevada.
Hycroft's stock is down about 77% since then. But of course, AMC Entertainment's investors have suffered even worse than that...
Today, the company's stock trades almost 99% below its all-time meme-stock high of about $625 per share. Anybody who bought shares of the stock over the past couple years is underwater as the stock makes new all-time lows almost every day. Take a look...
It's an awful situation. But as a financial-newsletter writer, it has proved irresistible to me many times.
And I couldn't resist AMC Entertainment's latest unbelievable moment...
I've said it before, but I doubt the company will be able to sell much more stock (if any).
It has already diluted its shareholders by roughly 97% since 2019. So it's hard to believe they have any appetite left for new shares.
But that hasn't stopped the company from selling whatever it can to the still-loyal apes...
AMC Entertainment now has its own line of popcorn that can be enjoyed from home. It will soon have its own line of gourmet chocolates. And in recent days, CEO Adam Aron floated the idea of company-branded fine wine and craft beer.
It's what we should expect, right? After all, it's clearly in the movies-and-gold-and-snacks-and-alcohol business these days.
The whole thing didn't get weird for me until Aron proposed the names "Chateau Simian" and "Saint Simian" for the wine and "Great Ape Ale" for the beer. In a post on social media website X (formerly Twitter), Aron said the names are "in honor of our retail investors."
As a group, the apes have lost nearly $29 billion on AMC Entertainment's stock...
Its market cap was less than $260 million in October 2020. About eight months later, it peaked at around $30 billion. And now, it has plummeted to around $1.2 billion today.
So I wonder if the apes will feel honored by the company's latest shenanigans. Maybe they'll look at a bottle (or a box?) of Chateau Simian wine or a bottle of Great Ape Ale beer and feel like Aron and the other company executives are just making fun of them at this point.
The apes haven't proved any ability to realize what's happening. But I can still picture one or two of them smartening up soon – if they haven't already. Maybe they'll think...
I've lost thousands of dollars betting on this crappy company, but at least my fellow apes and I have been honored on the labels of the wine and beer bottles it's selling us.
Gee, I wonder how much of this wine and beer they're selling.
Now that I think about it a minute (which I've never done since I first started buying the stock), those darn guys in the executive suite seem like they're mostly in the business of making money off of us apes, rather than trying to make some money for the most confoundedly loyal shareholders on the planet. But they wouldn't do that.
Hey bartender, how about another Great Ape Ale for me and a Chateau Simian pinot gris for my girlfriend (who might've been my wife by now if I had any money left)?
If you're out there listening, Adam, read the room...
You've hosed these folks down in epic fashion, time and time again, for two years and counting. You've brutalized them.
Give them a break and stop making fun of them.
Go away for a while. Get a hobby. Do yoga. Smoke pot. Have an affair. Whatever.
Just stop doing things to "honor" the people whose money you've lit on fire to the tune of tens of billions in market value.
Also, Adam, you should be careful...
If the apes ever stop drinking the Kool-Aid they've served each other on social media for the past two years, they might dump your stock. That would send it crashing down even further.
Can you imagine what will happen if a lot of apes decide they want to be on the other side of the "we're not selling no matter what" trade? Good luck to the company that earns the meme stockers' ire to the point of making them want to short its stock until it's a zero.
They'll stop posting "#tothemoon" with rocket emojis on social media. Instead, they'll start using new hashtags like "#straighttohell" and little angry devil emojis.
That's part of the point I made earlier this month about so-called "mindless investing"...
If the relentless, totally mindless buying that has buoyed markets for decades ever goes into reverse for any length of time, look out.
It's the same thing with individual stocks...
AMC Entertainment's shareholders have been loyal to a fault. It's anyone's guess what they could do if they turn into enemies because the company diluted the heck out of them and took their money while doing it.
Or maybe they'll just want to replace Aron with a robot...
Don't laugh. Someone else already gave them the idea...
In August 2022, luxury rum producer Dictador signed a contract with an artificial-intelligence-powered robot to become its new CEO and the "official face" of the company.
Dictador published the following picture of the new CEO on its website. "Mika" is a female-human-looking robot in a dark shirt with the word "Dictador" on it...
Well, that doesn't seem creepy at all. Nor does it feel like something out of a dystopian science-fiction movie, complete with cities ravaged by armies of intelligent machines.
Mika did a video interview with news service Reuters last week. (You can watch it on YouTube if you want to get creeped out even further.) During the interview, she said...
As a robot CEO, I don't really have weekends. I'm always on, 24/7, ready to make executive decisions and stir up some AI magic.
But hey, I don't mind. I'm here to help Dictador take over the world.
Gosh, Mika, you're not really selling the masses on artificial intelligence ("AI")...
It's hard to ignore the whole totally still-not-creepy-at-all part about taking over the world – like the machines in the Terminator movies. And did you need to mention working 24/7 with no weekends or vacations?
That's exactly why so many people are scared to death of robots and AI right now. Thanks for reminding them. (Oh, by the way, many of those folks are heavily armed.)
If I were a new robot CEO and I hoped to creep everyone out, that's exactly what I'd say.
As far as stirring up 'some AI magic'...
Mika's magic isn't quite ready for the big magic venues – like Las Vegas or elementary-school kids' birthday parties.
Reuters reported that Dictador originally tasked Mika with finding new clients (I assume that means distributors for its rum). And now, as the company's CEO, Mika is also choosing artists to design new bottles for the company's products.
It's almost like Mika isn't really Dictador's CEO or in charge of anything important. It seems like Dictador just wanted to dabble in AI – like a modern-day version of all the companies that added "dot com" to their names back in the late 1990s.
But what do I know?
Mika is also assigned to something called the Arthouse Spirits decentralized autonomous organization ("DAO") project. The organization's website lists Mika's role as...
Responsible for communication with The Arthouse Spirits DAO community members. She takes part in the creation processes, [provides] insights into and even [begins] to create trends.
I have no idea what the second sentence means. But the first part makes it sound like Mika is an automated customer-service chatbot.
Does the company really need its CEO to do that?
Maybe the apes shouldn't replace Aron with an AI robot yet. But then again, Mika isn't force-feeding millions of new shares down the throats of Dictador's investors. And she isn't wasting money investing in shuttered gold mines or making popcorn and candy.
This doesn't mean there's no place for AI in the corporate world – or that Adam Aron's job is safe...
In June, five university-affiliated researchers published a new paper about this idea. Specifically, they studied how AI applications like ChatGPT would perform when answering analysts' questions on public companies' quarterly conference calls.
First, the researchers fed data from financial statements, earnings press releases, and the introductory statements of conference calls into ChatGPT (among other AI programs). Then, they let ChatGPT answer the questions that executives took from analysts on the calls.
Some of the CEOs' answers on the earnings calls were close to ChatGPT's responses. And others gave a lot more detail...
Notably, the more detailed answers moved the underlying company's stock price up or down more than the ChatGPT-esque responses.
In other words, the management teams on those calls gave investors more information that wasn't in the financial statements, earnings press releases, or introductory remarks. And the market acted on that information.
It makes you wonder what the others are hiding.
I learned about this research from Bloomberg columnist Matt Levine, who wrote about it a couple weeks ago. In the column, Levine concluded (presumably tongue-in-cheek)...
Possibly the takeaway, for corporations, is that if earnings are bad you should have ChatGPT do your earnings call, but if they're good you should do it yourself.
I would add something else to that takeaway...
If your business is supposedly selling movie tickets and refreshments but is actually just looking for ways to get more money out of the shareholders you've already fleeced for billions of dollars, you should definitely let ChatGPT do your conference calls.
If I were on AMC Entertainment's board of directors – before resigning immediately afterward, downing a double martini, and taking a long, hot shower – I'd fire off a memo asking the other board members if they thought Mika or ChatGPT would've recommended investing $28 million in a shuttered gold mine in Nevada. Then, I'd tell them to make it clear to Aron that ChatGPT and Mika are his competition – and so far, he's not looking great.
I'm not board-member material. And I'd make a terrible CEO. But I've seen enough CEO behavior in the past 30 years or so to know when somebody needs to be replaced.
I would've let Aron go as soon as he bought the stake in the gold mine...
That's when investing great Peter Lynch likely would've accused Aron of "diworsification."
Lynch coined the term and discussed it at length in his 1989 classic, One Up On Wall Street. It's when a company acquires businesses it knows nothing about and hopes to grow into a diversified conglomerate.
In the book, Lynch gave several examples of that era – including General Mills (GIS). At one time or another, the packaged-foods maker owned Chinese restaurants, Italian restaurants, steak houses, toymaker Parker Brothers, clothing makers Izod and Eddie Bauer, travel companies, and golf-apparel maker FootJoy.
A struggling, over-indebted movie-theater chain putting $28 million into a shuttered gold mine is a perfect example of diworsification. I can promise you that Aron knows absolutely nothing about gold mining.
Don't ask me why companies diworsify. I don't know – and neither did Lynch. As he wrote in One Up On Wall Street...
The why of all this I've never understood, except perhaps that corporate management finds it more exciting to take over smaller companies, however expensive, than to buy back shares or mail dividend checks, which requires no imagination.
Lynch described diworsification as an ailment of "profitable companies" blowing all the money they make instead of buying back shares or paying dividends.
When you look at it that way, AMC Entertainment doesn't fit. The company hasn't made an annual profit since 2018. And its last streak of consistent profitability ended in 2016.
But to me, AMC Entertainment is an even worse example of diworsification...
It wasn't wasting profits when it bought 22% of Hycroft. Instead, it was wasting the capital of the investing world's little guys after it sold more (and more and more) shares to them.
After wrapping up today's Digest, I should write a thank-you note to Aron...
Sure, the apes lose a lot of money every time Aron makes a new headline. And that probably won't stop until AMC Entertainment joins Bed Bath & Beyond in bankruptcy.
But for a financial-newsletter writer like me, it's the gift that keeps on giving...
If it weren't for Aron and other greedy, clueless CEOs, I couldn't keep warning you almost every Friday about the dangers lurking in the market. Every time Aron tries to diworsify into a shuttered gold mine or floats the idea of awkwardly naming the movie-theater operator's beer and wine, I can point out what's wrong and help you avoid danger.
That's the lesson I want you to take into the weekend...
I'm not saying Digest readers would fall for any of this nonsense. But it's useful to point out all the excesses of the mega-bubble and reinforce the general idea that markets aren't safe if you don't know what you're doing.
So thank you, AMC Entertainment, for helping us all keep our guard up for another week.
New 52-week highs (as of 9/21/23): Enterprise Products Partners (EPD), Ryder System (R), and Sprouts Farmers Market (SFM).
In today's mailbag, a subscriber argues against any bullishness about the market today. Do you have a comment or question? E-mail us at feedback@stansberryresearch.com.
"New bull? It is hard for me to buy. [Treasury Secretary Janet] Yellen has issued T-Bills since '21 in what I would call an Eiffel Tower pattern, beyond belief. These T-Bills are just another form of [quantitative easing] as she plays chicken with [Federal Reserve Chair Jerome] Powell. And now the public is buying this sh*t paper as institutional and governments are full to the gills. Who is 'really' going to get hurt? As soon as Powell says, 'OK, I'm done,' she will stop issuing T-Bills and I believe we will see a look out below in the market as the transfer of wealth begins in earnest.
"To take it further, oil may pull back a little right now but in a few weeks the BRICS are going to tighten the screws more and the uptrend continues. If you guys don't think the average Joe is not going to go berserk with $10 a gallon (at least in California) gas, you got some bum dope..." – Subscriber Craig R.
"Great articles Corey! Since Captain Powell can't see the stars, I think we should just follow Captain Morgan!" – Subscriber Larry N.
Good investing,
Dan Ferris
Eagle Point, Oregon
September 22, 2023
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