Lessons from Dean Foods bankruptcy filing; Europe Is Toughest on Big Tech, Yet Big Tech Still Reigns; The SoftBank Effect: How $100 Billion Left Workers in a Hole; Elon Musk's evil and immoral behavior; Kenya plane safari
1) The nation's biggest milk producer, Dean Foods (DF), filed for bankruptcy yesterday: No. 1 milk company declares bankruptcy amid drop in demand.
The stock has been halted and is almost certain to be a zero. As recently as three years ago, it was trading above $20, and the company had a market cap of more than $2 billion and an enterprise value of nearly $3 billion.
I'm reminded of this because a guest speaker at one of my seminars last year, a former hedge-fund manager who made his fortune and retired, told my students that Dean Foods was his favorite short idea. The stock had already been cut in half to around $10, but he said it was still a great short, as the company was a classic "melting ice cube."
This reminds me of something I've noticed recently: Few short-sellers have made money amidst this long, complacent bull market, but two types sometimes have...
One is those with a short-term horizon, typically trading around specific catalysts like an earnings report or the publication of their own bearish research. The other is those who shorted businesses in secular decline like Dean Foods (i.e., melting ice cubes) – think sleazy drug companies like Teva Pharmaceutical Industries (TEVA), Mallinckrodt (MNK), Endo (ENDP), and Insys Therapeutics (INSYQ)... or roadkill retailers like Macy's (M), Sears (SHLDQ), JC Penney (JCP), Bed Bath & Beyond (BBBY), and GameStop (GME).
Another important lesson from the Dean Foods bankruptcy is to avoid bottom-fishing turnaround stories in which there's meaningful debt. It can turbocharge returns, of course, but also makes a zero far more likely.
Lastly, I've said it before and I'll say it again: ignore short-sellers at your peril! Dean Foods' stock has a nearly 30% short interest, as savvy short-sellers correctly foresaw the inevitable outcome. How many investors got clobbered, thinking it was cheap at $10... $5... and as recently as Monday, $0.80?
2) I've long been critical of the behavior of the tech giants and called for regulators to rein in their many excesses, yet still think the stocks of Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB) are attractive.
How do I reconcile these seemingly contradictory views? Mainly because I'm skeptical that for all their talk, politicians and regulators are actually going to do anything to materially affect these companies' growth or profitability. This article in Monday's New York Times, Europe Is Toughest on Big Tech, Yet Big Tech Still Reigns, reinforces my view. Excerpt:
Regulators in Brussels have been heralded as the world's leading tech industry watchdogs. But Mr. Stables and other veterans of the Continent's antitrust battles are telling American authorities, who are investigating Google, Amazon, Apple and Facebook, something else: There is a lot to learn from Europe's mistakes.
Antitrust investigations in Europe have taken years to complete, in part because company lawyers use stalling techniques that give the tech giants added time to squeeze out rivals, according to companies, lawyers and consumer groups involved in the cases against Google. The inquiries have centered on single aspects of the companies, like Google shopping, rather than their entire business. And once regulators have stepped in, the penalties have focused on headline-grabbing fines rather than structural changes that would restore competitive balance.
Europe's regulators have taken antitrust actions against numerous tech companies. None have faced more scrutiny over the past decade than Google – yet critics say it has emerged virtually unscathed. Its revenue rose to $137 billion in 2018, up from $23.7 billion in 2009, when rivals filed the first antitrust complaint.
3) Speaking of tech companies behaving badly, here's another angle on it from the New York Times: The SoftBank Effect: How $100 Billion Left Workers in a Hole. Excerpt:
Mr. Solankey is one of millions of workers and small-business people who worked with start-ups financed by the biggest venture capital fund in history, the $100 billion Vision Fund run by the Japanese conglomerate SoftBank. The fund was part of a flood of money that has washed over the world in the past decade – and that has upended people's lives when the start-ups broke their promises.
Masayoshi Son, SoftBank's chief executive, was hailed as a kingmaker in 2016 when he unveiled the Vision Fund. Using the cash hoard, Mr. Son poured money into fledgling companies across the world, many of which have a business model of hiring contractors who deliver their services. Above all, he urged these start-ups to grow as fast as possible.
Many of the young companies used SoftBank's cash to dangle incentives and other payments to quickly attract as many workers as they could. But when they failed to make a profit and SoftBank changed its tune on growth, the companies often slashed or reneged on those same incentives.
That has now left contractors like Mr. Solankey holding the bag. With little power to fight back, many of them have been financially and personally devastated.
This is yet another reason why I think SoftBank's Vision Fund is going to blow sky-high, taking SoftBank's stock down with it...
4) Someone with the handle TeslaCharts posted a Twitter thread documenting nearly two dozen examples of Tesla (TSLA) CEO Elon Musk's evil and immoral behavior, hiding safety issues and trying to destroy any and all critics. He concludes:
There are countless other examples I could have covered. To all the enablers of @elonmusk I say this: Shame on you. History will not be kind to you and nor should it be. Short burns and stock price bro aren't going to make $TSLAQ go away. This is bigger than money.
5) I got a kick out of the adventure my dad and nephew had last weekend.
As background, my parents are educators who met and married in the Peace Corps in 1962. For most of their lives, they've lived in developing countries. (I spent more than half my childhood in Nicaragua and Tanzania, where my sister was born.) They have retired in Kenya, outside the capital, Nairobi, where they like to ride horses and fly around the country in my dad's little single-engine Cessna airplane. It's a wonderful, adventurous life for two nearly 80-year-olds!
My sister and her 14-year-old son Benjamin live close by. Benjamin is super interested in all things related to outer space, so he learned that Mercury would be crossing the sun this past Monday. It happens like clockwork – but only roughly every decade or so (the next time won't be until 2032)!
The weather was cloudy in Nairobi, so Benjamin and my dad hopped in the plane (with Benjamin's friend) and flew down to the famed Masai Mara game reserve to watch it. Here's my dad's description:
Benjamin and I had a wonderful 24 hours in which we flew with his friend to the Masai Mara in order to find clear skies so we could observe Mercury crossing the sun. As we began to watch the event, clouds covered the sun, so we rushed back to the airplane and flew to another site 20 miles to the east where we found clear skies. The planet was tiny but we were able to see the solar event. In addition, we camped out overnight and did a game drive on both days.
What an amazing adventure! Here are some pictures:
Best regards,
Whitney