Meme-stock crowd got crushed, shares collapsed 69% in four days. Their billionaire hedge-fund hero, who might have known about the unpaid bills, got out in time.
By Wolf Richter for WOLF STREET.
The $675 million of senior unsecured 30-year bonds that meme-stock darling Bed Bath & Beyond issued in 2014, and that are due in 2044, with a coupon interest of 5.165%, collapsed to a new closing low of 15.8 cents on the dollar today, with some trades being below 15 cents, after having plunged all last week from the meme-stock inspired dead-cat bounce.
That would be a yield to maturity of 33%, assuming that the company pays the interest for the life of the bond and doesn’t default, and at maturity pays off the bond. But with this yield, the bond market is signaling that a default and a bankruptcy filing are imminent, with a massive haircut for unsecured bondholders (chart by FINRA/Morningstar):
On Friday, Bloomberg reported that a survey of vendors, undertaken by credit-rating and consulting firm Pulse Ratings, had found that Bed Bath & Beyond had fallen behind as much as 90 days on its bills.
All respondents had past-due accounts receivable with Bed Bath & Beyond, and some said that over half of their accounts receivable with Bed Bath & Beyond were past due. The suppliers also complained that “management is short on guidance about its plans to catch up with its past-due bills,” according to Bloomberg, citing the survey it had seen.
Also according to Bloomberg, based on its sources, several firms that provide trade credit insurance to vendors have revoked coverage of Bed Bath & Beyond.
Not being able to pay suppliers is getting very close to the endgame. And the bond market knows that a lot better than the meme-stock crowd.
The $225 million of senior unsecured 20-year notes that Bed Bath & Beyond issued in 2014, due in 2034, with a coupon interest of 4.915%, collapsed to a new low of 16 cents on the dollar today.
That would be a yield of 34%, assuming that the company even pays the interest for the life of the bond which the bond market assumes is very unlikely (chart by FINRA/Morningstar)
The $300 million in of senior unsecured 10-year notes that Bed Bath & Beyond issued in 2014, due in 2024, with a coupon interest of 3.749%, collapsed to a new low of 32.7 cents on the dollar today.
That’s a yield to maturity of 75%, assuming that those bonds will pay interest for two years and then get redeemed at face value in August 2024. But the bond market is nearly certain the company will default before August 2024, and that a bankruptcy court will give them high and tight haircuts (chart by FINRA/Morningstar)
The likely buyers of these bonds are hedge funds and PE firms that want a seat at the table during the bankruptcy proceedings to get their share of the pie while shareholders get ripped apart.
This plunge in bond prices unwinds the boost that the bonds received from the meme-stock crowd when they inflated the shares to such an extent that it created the hope that the company could raise cash by issuing new shares at those inflated prices. But that didn’t happen.
But from the prices today, we can see that holders of these unsecured bonds are now figuring into their calculus a very high probability that they will have to fight this out in bankruptcy court.
Numerous other brick and mortar retailers were liquidated in bankruptcy court in recent years, including Toys ‘R’ Us. Sears was chopped to little pieces in bankruptcy court. Money-losing over-indebted brick-and-mortar retailers are notoriously difficult the restructure in bankruptcy court, and most end up getting liquidated.
Holders of unsecured bonds issued by retailers tend to get little or nothing in bankruptcy court. But stockholders are the bottom of the capital structure, lower even than unsecured bond holders and other unsecured creditors, and tend to get wiped out.
And yet, bankruptcy filings have fired up the meme-stock crowd into bidding up shares of companies after they filed for bankruptcy, hoping for I dunno, that at a minimum they can sell that stuff to the greater meme-stock fool at 10 times the price?
But selling that stuff is precisely what the meme-stock crowd doesn’t do, and so they get wiped out when the hedge fund billionaires amid them – who know that you don’t have a profit until you dump this stuff – dump this stuff, and eager falling-knife grabbers in the meme-stock crowd make that a very profitable trade for the hedge fund billionaires.
Which is what happened in the case of Bed Bath & Beyond when activist investor Ryan Cohen, five months after hyping the shares and disclosing that his firm RC Ventures had taken a 9.8% stake in the company, and then imposing some changes on the company, dumped his entire stake, causing the shares to re-collapse.
SEC filings show that RC Ventures dumped the shares on August 16 and 17 at prices ranging from $18.68 to $29.21, cashing out a profit of $69 million, while the meme-stock traders that hung on to their shares or bought the falling knives got carried out on stretchers.
The Bloomberg report came out on Friday, and the information that Bed Bath & Beyond was behind on its bills had likely started circulating before then. The bonds started to re-collapse on August 17. There is a good chance that Cohen knew that the company was behind on its bills – that he knew that this was getting close to the endgame and that he needed to get out while the getting was good.
Only the meme stock traders didn’t know it. These folks need to learn from Cohen that you don’t make money with this crap unless you sell this crap when it’s high.
From the intraday high on August 17 of $30 a share until the close today – in four and a half trading days – the share price kathoomphed 69% (data via YCharts):
In the end, this is the classic story of a brick-and-mortar retailer with lots of big stores that got run over by ecommerce.
Bed Bath & Beyond has an ecommerce operation, like Sears and Toys ‘R’ Us had ecommerce operations, and customers are using it. But the stores are expensive to operate, and they require a lot of inventory (cash) and staff, and this has been years in the making.
Annual revenues collapsed by 36% from the peak in 2017 through 2021, and 2021 was the best year ever for retailers as consumers blew their pandemic gazillions on no matter what — but they stayed away from Bed Bath & Beyond:
What’s different is that the meme-stock traders and hedge funds have gotten involved in the brick-and-mortar meltdown – also see GameStop – during the greatest stock bubble ever, and they played this game amongst each other, shuffling those stocks back and forth, hyping the shares in the social media and then dumping them, while others believed their hype and bought the stuff and got cleaned out. Oldest game in town. And throughout, the SEC has been reliably asleep.
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Bloodbath and beyond…
“What’s different is that the meme-stock traders and hedge funds have gotten involved in the brick-and-mortar meltdown – also see GameStop – during the greatest stock bubble ever, and they played this game amongst each other, shuffling those stocks back and forth, hyping the shares in the social media and then dumping them, while others believed their hype and bought the stuff and got cleaned out.”
Only in Jerome Bowell’s financial shit show is this possible.
I feel sad for folks who believed the hike. Many of these would be low income households that would have lost their inflation hedge bet here.
That’s why I want Fed to raise rates and QT faster. This snail pace is enabling the pump and dump gang to dump the bag on the needy folks in name of inflation hedge : “Buy stocks or Bitcoins or DogCoins or Houses or Cars now, as inflation hedge, otherwise, you will never be able to afford it again!”
Why does the administration feel that all the people who are losing money today will vote for them?
I see generation after generation get burnt by these pyramid schemes.
We need schools to educate people on what money really represents and that it requires productivity to create money.
SS,
I don’t know about you, but I don’t see it my responsibility to fix stupid…
On the contrary, I do feel it my responsibility to run from it…
@COWG: Financial literacy should be required at the high school level, *before* these 17-year-olds go make uneducated decisions that could affect their entire lives. It’s not stupidity as much as ignorance, and the more ignorance that gets eradicated, the better for all of us.
Clete,
I agree wholeheartedly…
However, you have two problems…
The first is these kids have the attention span of a gnat…
The second is that their spending is someone else’s income… as the Wolf repeats frequently….
So for every voice you have that says “save a little for a rainy day”, you have ten thousand voices saying, “eff that, it ain’t ever going to rain”…
I lost 2 houses in 2009. That was an expensive lesson, but probably cheaper then college. And its a lesson I will never forget.
Greed is fueled by emotion, not logic. Schools will not fix it.
+1 to the above post. No amount of classroom instruction is a remedy for a mania.
> Greed is fueled by emotion, not logic. Schools will not fix it.
Sounds logical.
Maybe not logic teachable by schools alone, but learnable.
“…Why does the administration feel that all the people who are losing money today will vote for them?”
Just a guess: The administration has less understanding of the financial system than the people who are losing money.
It is NOT the administration’s responsibility! Suggesting that a future value will go up is generally an expression of opinion, not (of fact which is) fraud. I am startled at all these anti-government types insisting government should fix this. These are tings that inherently happen in markets, and saving suckers from themselves is absurd and impossible. It is the greed of the punters (and ignorance) that is their OWN problem, not mine or yours or the government’s.
I am an educator, frantically educating young college entrance level kids this very week, on just this stuff. But if they mess it up, just as if they CHOOSE to drive drunk off a cliff, there is only so much responsibility-shuffling that makes sense. the incoherence of some of these comments is striking: mostly just seeking a place to vent senselessly blame-shifting anger.
The administration is giving us well-functioning and fairly well-policed markets, in which we can still be fools. But the complaint department never sleeps, I guess. It is not the Prez’s job to chase your kid down the block and tell him how to blow his cash.
Phleep, why would the effects of Fed put not be administration’s responsibility?
Why should we not promote our constitution that establishes this system of accountability
I need to go towel shopping today. Our BBB wedding towels from 30 years ago are now wearing out.
Crony Capitalism and rampant speculation at its best.
I yearn for soft towels and a normal market.
Seen it,
It is just as much your fellow consumers accepting trash that is at fault. It takes all sides to tango. If the public acted intelligently in its best interest, the markets would be sorted out. It is your neighbor’s financial ill health and folly that invites the devil in, to feed on the weaknesses.
Wait until the stock shows up at Ollie’s Bargain Outlet @ 60% off, no coupons required.
Perfectly said. Only in Powell’s fantasy world is this possible. Rampant speculation in useless companies and shitcoins. Perverse misallocation of capital and resources. The insiders did make out like a bandit though and the SEC does not even bother to look at it.
I agree the easy money created a moral hazard. But every sh!tcoin needs a fool to buy it, to have any effect. It is the decline of broad public intelligence that turns bad policies into financial rot and disasters.
I believe the Libertarian Supreme Six majority in SCOTUS told the SEC it had a very limited ability to regulate. You know, ‘small government’ stuff. We citizens got what we deserve: An indifferent government. And six libertarian politicians masquerading as Judges on SCOTUS, are making sure that government remains indifferent.
The libertarians believe in Free Markets and Austrian economics. If administration was following principles laid by Milton Freedman (or even Thomas Jefferson), there would be no bailouts and no need for SEC to regulate the printed fraudulent money.
From my limited observations of SC decisions, I’ve never seen any indication they lean much less are Libertarian.
Corporatists? Probably
Fed has given many carrots to people who would take on more debt for consumption or speculation and sticks for people trying to live and invest responsibly. Let’s see if Fed can ease people into acting responsible without causing a panic.
That’s the great pickle the system is in! The patient is so unhealthy, withdrawal of punchbowl booze and dope injections will kill it. But it is the path to restore any kind of sane business cycle and conditions.
I’m confident the FRB won’t voluntarily completely trash the USD. It will happen at some point but not because anyone with any influence wants to do it.
Can’t do that or the Empire is done. It’s also the basis of the FRB’s institutional influence and power which won’t be destroyed voluntarily, certainly not to inflate fake paper “wealth”.
Beyond that, I’m confident that policies will continue to benefit borrowers, spenders, and debtors at the expense of creditors and savers.
So that guy Cohen will be in jail for obvious insider trading?
I don’t think anyone noticed :-]
Wolf, well *you* noticed, and that’s a good start to reifying such financial crimes from the opaqueness shady people love to operate within.
I don’t know how moral people keep their sanity in this lawless environment where evil wins so much.
JJ,
Not to defend manipulative scumbags but…at no time in human history has it been easier to get a monumental amount of information about any public company. (Google).
From basic principles (diversification will save your ass many a time) to learning specific company details (10k’s and beyond) the info is there for those who bother to read it.
Which would seem de minimis for putting large amounts of your hard earned money into it.
This ain’t like ZIRP (where if you hold dollars, you are pinned against a wall and/or lured into kill boxes writ macro) – it is simple enough *not* to invest in individual companies with dubious financials.
But you gotta spend 20 minutes to learn about them.
Cas127,
People should certainly research companies before investing. However, do really believe you only “gotta spend 20 minutes” to do what you propose? Most 10K’s alone are tens of thousands of words. There’s no need to minimize the effort it takes to be informed.
You are right Rojogrande, Cas127’s general comment is a joke as applied to most humans ……….. How far would 20 minutes research get you with Enron?
I doubt even Wolf, with his brainpower, memory, base knowledge, sources, and research feeds could vet a stock to the point of pulling a purchase trigger in 20 minutes, starting from scratch.
————————————–
@ Wolf –
How much time did it take you to research this article on Bed, Bath & Beyond? What sources did you use? It looks like days or weeks of research, note taking, calculating and thinking.
At 1 to 2 articles per day, an outside observer would think you have a large research staff and support group.
Rojo,
20 minutes of semi-intelligent Googling is enough to tell if there is stink on a company.
And if there is some/much stink on a company, that is enough to put it into the “1% to 5% of wealth invested” basket and no more.
There are thousands of public companies and thousands of well diversified mutual funds/etfs. Plenty of alternative invts.
Again, simple diversification (again, as “obscure” as “don’t put all your eggs in one basket”…) will save 80% of the naive from leaping head first into a wood chipper.
There are plenty (plenty!) of scumbags on the sell-side of finance but they mostly succeed due to the greed/carelessness of the buyers who they exploit.
Cas127
“basic principles (diversification will save your ass many a time)’
Diversification will help during secular Bull mkts but NOT during the secular BEAR mkts, like now!
One needs UNCORRELATED assets including going against the mkts, to preserve the capital.
Those who ‘diversified’ still lost during 2000 and 2008.
This one is ‘everything’ bubble will burst slowly and or suddenly.
Hopium is still strong along with a wish for a Fed pivot!? Many retail investors will ‘bag holders’!
Sunny,
You know what the easiest uncorrelated asset in the world is?
Cash.
Stick it in the bank and wait out the madness.
And if the madness lasts decades (ZIRP), the problem is “government as master forger” not the fact that financial research is impossible.
cb,
Regarding Enron, the stock price told everyone there was trouble long before the “news” came out and it filed for bankruptcy. The stock peaked at $90 and was at $14 the day the scandal broke.
Yes, that decline was during a bear market, but it fell a lot more than the market averages. Not sure about the price of the debt but shouldn’t have bene hard to find out with one call to their broker.
@ Augustus Frost –
I am not knowledgeable enough to have any clue of what a stock price alone is telling.
The price could be based on good fundamentals and prudent buyers, deceptive accounting, herd behavior, etc.
If you have a broker that can tell you whether a stock is properly priced or not, hang onto him. I am not so lucky.
We need more Cohencidence noticing.
“Cohencidence” – This made my morning.
Who do you think he is, Martha Stewart? He won’t even pay taxes.
Insider trading??? I think it was caused by an Attack from the Planet of the Apes. As insurance companies say, this was an “Act from God”
Cramer praised him for this move. Cramer is an Ape-hater.
This could just as easily have been an old fashioned pump and dump, easily coul;d be fraud-or-insider-trading-free, a sort of jiu jitsu using the suckerhood energy of meme investors. I don’t KNOW that Cohen had material non-public information (required for insider trading). I think it just as likely he knew he could cash in his cachet with these meme kids, sell out his guru reputation (“reputation mining,” cashing in on one’s hot rep) and jazz them into holding this bag for him. he didn’t have to lie to them, quite. Their greed propelled this machine, he just smartly played on it. How many of them did any diligence on BB&B? How many just believed an obviously hyped story? Their bad, and their loss.
That isn’t Powell’s fault, or crony capitalism, or whatever grumbly old-guy meme you want to cook up. It is just “investor” greed and overconfidence, and a clever trader playing it, and hopefully a lesson learned. I see more the stupid than the bad, here.
Powell and the FED have a great deal of fault. They contributed to the idiocy and mis-orientation of finance in general. Thieves in plain sight; sanctioned by the state and defended by beneficiaries and useful idiots ……………..
So, what prudent person buys unsecured, long-term bonds? Too much can happen, as here. Sheesh!
Agreed.
But people hear “bonds” and think that guarantees a return of their money.
20 minutes on Google will show that unsecured bonds might get 20 cents on the dollar if a bankruptcy occurs.
But something tells me the American people are going to learn a ton about bankruptcies over the next decades.
What percentage of these ‘bonds’ are in 401Ks and pension plans? These are all nicely packaged together, with few options to pick from. These are not just lemmings, but blind lemmings to the cliff.
Well, at least those 401k bond funds are usually well diversified…and if they aren’t the employee savers have a pretty decent lawsuit against the employers who selected the menu of 401k options.
Again, simply Googling “risks of X” and then spending some time reading the results, will save a lot of people a lot of hurt.
This isn’t the dark ages, when people needed to go to a library…
Again, I agree there are plenty of sell-side douchebags.
But there is less and less reason to make it easy for them.
Did you know that lemmings don’t commit mass suicide jumping off cliffs. That’s a Disney myth. Disney threw them off the cliff. Look it up.
Methinks that is a more apt analogy for this economic situation in any case.
Although it looks bad and that people took bad losses, meme chasing I think (although I’m a bit old for reddit all day) is young adults/teenagers in their bedroom with relatively small stakes of money, 100 bucks etc, looking for a collective win against shorts. I don’t think they have any serious money.
In some ways, its a fairly sophisticated approach but didn’t come off this time, but I don’t think it is the outright fleecing of innocents, just didn’t pan out. You could argue that the meme stock chasers should be investigated by the SEC because their whole strategy relies on price fixing through collaboration.
There are no “innocents” in this. There are only experienced gamblers and inexperienced gamblers.
Thanks, Wolf, for pointing this out. The fleecing of the “innocents” is as passe as the “mom and pop” operations vs. the gargantuans. If people stopped demonizing the rippers and sanctifying the rippees, we’d be closer to reality.
CAS127 always slams government but, ironically, is suggesting here that more time be spent studying stocks they buy. Well, that requires some education, some critical thinking and some free time which the sheeple have little of. Unless he’s willing to teach for free, educators need to be paid, and taxes need to be raised. But if the “GUMMNT” is always, ALWAYS characterized as evil, as are the taxes which infringe on your precious liberty, then it’s down with government!
The big bad government is bad at the highest levels, not midstream or lower. And that bad government is due to corporations, hedge funds, VCs, oligarchs who WANT ignorance of the masses, feed them processed ideas, products and food, stop regulation that helps the numbskulls, and keep stoking the campaign fires. The intense partisanship is like gasoline for the oligarchs. Lobbyists (corporations) run the country and the regulatory agencies.
Commenters here have been ranting about the Military Industrial Complex, Financial I. Complex, Medical I. Complex, Higher Ed I. Complex, Pharma I. Complex, but nothing on the control of Congress, POTUS & the courts by lobbyists, which is the Campaign Industrial Complex. That shapes the government that people like CAS127 continuously rail against.
Finding corruption here or there is like the parable of the elephant that blind men can’t identify but can find scraps of evidence touching and feeling parts of the animal. The elephant is campaign finance and lobbying. Unless that sh+t is hauled out, we can keep bitching about the skin, the tusks, the toes, or the smell of the elephant.
*My first comment. I feel like as soon as I hit “reply” it may be the “comments’ equivalent of stepping into that rigged hallway in the first Resident Evil film. F it…*
No “innocents”? In day or swing trading – agreed 100%.
From the point of view of the every-day working man/woman, who puts a percentage of their earnings into a 401lK, Pension,… so these Wall St banks can use it as collateral to leverage up and eventually move a large portion of those savings to their funds, with stealth precision? Not so much.
Now, by experienced gamblers do you mean those with access to:
High Frequency Trading Algo’s
ALADDIN
Dark Pools
Ability to process trades during HALTS
ISDA level trading vehicles
FED RRP and other spot bail outs as needed
Wash trading, married PUTS/CALLS, naked shorting, shorts marked long, price spoofing, trading desks in The City of London, instant access to data….? And on and on the list could go….
… and inexperienced gamblers would be those with no access to that mentioned in the list above?
Something like that?
Maybe a more appropriate adjective combination would be advantaged/disadvantaged or top 1%/bottom 99%.
To hurl insults at retail investors who are trying their best to find and exploit market inefficiencies while banding together with the other likeminded seems like BS since that is exactly what Wall St banks and HF’s do. Except retail don’t have access to the advantages. We’ll see if Lauer’s Terminal, will help.
The narrative is always about the duped retail investor and god forbid a retail investor to actually win! Like, what?! Better drag him/her in front of Congress. Even though I think KG was exponentially smarter and more well connected than it appeared, as evidenced by his flawless performance during those sham hearings.
So (FINALLY, ha!), I guess all us retail dopes should just pull all our funds from any investment vehicle tied to Wall St and save it, in the most extreme case, in a non-ISDA bank or Credit Union. Let’s see how far Wall St goes then. Hey, an inexperienced gambler can always dream.
Ah, crap, last thing…why no mention of Buy Buy Baby? Or the Freeman college-kid who made off with a hundred milly, or so? Isn’t his dad a Hedge Fund guy? hmmm…
BBBY is far from over.
Sorry for the tl;dr. Adderall ;)
OK, retail fools who throw their money away are blameless saints who should be protected at all costs to everyone and everything else. The world should be made into a little kiddy pool where one can never make a wrong choice, without a generous bailout. Silliest comment I ever saw here. Let’s always transfer responsibility from where it should naturally rest. Thank you, Comrade.
If things were honest and fair, then most people would be eating turnips every day!
The guy who sometimes delivers our office flowers fancies himself as an investor and since he found out that we do finance he won’t stop talking about his successes with meme stocks trying to talk himself into a job – he reckons he put in 30k buying GME and cashed out at slightly over x10; enough to pay off his mortgage and buy an audi in cash, and to be honest I believe him.
He may be an outlier, but I’m guessing that many of the Reddit crowd were investing similar amounts – most, if not all, of their ready cash and savings, certainly the tales people tell on Wall St Bets subreddit seem to bear this out.
Win big, or lose it all seems be their methodology.
Why not hire him? How many guys at your finance firm have produced 10x?
(does your finance firm pick investments, or do they just package and skim fees)
SB
Does “their methodology” only apply to the Reddit crowd?
Or, is it fair to say it, may also apply to Bear Stearns, New Century, Lehman Bros., Melvin Capital, Archepegos, Three Arrows…? With more to come?
Did they not also attempt to win big with – not stimulus money, but – massive, overleveraged positions taken in a specific investment vehicle or strategy and end up losing it all?
Meanwhile, according the Office of the Comptroller of Currency website, do the top 25 banks not hold roughly $450T of derivatives on their books? Probably add another 10% for “cookage” (you know what I mean :)). During the 2008 meltdown the derivative total was what? Around $70T?
But all we hear about is how these mongoloid Reddit traders need to be reigned in. Their $1000 bets on these risky assets is unprecedented. The pro’s don’t take risks, do they? I’m not directing this part at you SB. Just a quick rant, in general.
You would think that all the professionals in the Financial Services Industry would be overjoyed at all the dumb/free money flowing into their market and cast their nets wide. But, no. All we hear or see is the endless whining and insults.
Could the Reddit crowd, with their $600 stimulus checks, be disrupting???
Ricky,
“You would think that all the professionals in the Financial Services Industry would be overjoyed at all the dumb/free money flowing into their market…”
Yes, they are “overjoyed at all the dumb/free money flowing into their market,” and they’re taking it until they have just about everything they can take. See Ryan Cohen, who’s part of that crowd, and he took what he could and ran with it. That’s how that is done properly.
This guy has it pegged — with no mortgage or car payment, he can do something unlike deliver flowers for his lesser cash needs. I used to help a florist friend on holidays (Valentine’s, Mother’s Day, etc.) and it was a blast making deliveries. No one’s ever unhappy to see you, unlike when you make sales calls.
This is why stock buybacks should be illegal except in very limited circumstances:
“…the company’s board of directors has deployed more than $1 billion toward share repurchases”
The org I work for is massive and is doing massive buybacks. They lost a lot of money, close to 1 Billion, last year. Yet, they have enough money to buyback stock. BTW we are on a hiring freeze and wage stagnation.
Especially when U.S. stocks are more overvalued than the Chinese real estate market. It’s criminal to see buybacks when the summer of 1929 looked like a better time to be buying back stocks.
Dollar hit 52-week high today. And coincidentally 20-year high. Euro below par. Winning.
Winning? Ask US exporters if they are winning!
Dollar is winning against Euro because it’s going down slightly slower than Euro.
If you see the chart on Dollar purchasing power, you realize that it’s “going to heck in a straight line” unlike what the beer mugs predict!
Hi Guys Gals & Lady Boys — from Malaysia. Just curious if Wolf would like to take a look at an interesting discussion that looks at the (War) between the Fed and the EU that touches on the comments I see here .. Cheers Sam
Thinking of Gamestop as merely a ‘memestock’ is missing the forest for the trees, and the saga is far from over. Markets are facing a regulatory nightmare due to the existence of massive amounts of synthetic shares created by both legal and illegal naked short selling. Court documents have indicated short positions numbering well in excess of 140% of the float, and likely much, much more.
Most recently, the DTCC fraudulently instructed brokers, both foreign and domestic, to split existing GME shares into 4, instead of distributing shares that were created, and then distributed as a dividend via Gamestop’s registered transfer agent, Computershare. The DTCC was so short on shares they literally just told brokers to adjust their internal ledgers to reflect a new larger number instead of actually distributing real shares as the Gamestop corporate action stipulated. Multiple foreign regulatory agencies are currently investigating.
The buy button was literally turned off, because short exposure to the stock caused margin calls the DTCC itself described as 3x larger than any previous margin breach. An (in their words) “idiosyncratic risk” that actually threatened to break the system. At the height of the mania, as many like to describe it, GME stock only reached a level valuing the company at 40 billion. Ask yourself, why was that 40 billion enough almost break the market, when the AMTD fiasco of only 3 weeks ago reached heights of 400 billion.
Media loves to treat GME investors as idiots, when in reality they’re wanting to stand up to market fraud and corruption as well as capitalize on the opportunity to squeeze hedgefunds, brokers, and marketmakers who overplayed their hand when they thought they could short brick and mortar retail into the ground once Covid shutdowns first started. Melvin Capital already folded. Will Citadel be next? They’ve borrowed 4 billion this year already with nothing to show for it, and their bonds are now rated one level up from junk.
This is an important comment. Many decent, viable, but declining businesses get targeted by short-sellers with access to unlimited zero-interest credit, so their stock prices are driven into the ground, creating self-fulfilling tragic consequences for spooked shareholders.
There are also many zombie companies, hemorrhaging cash, that should’ve bled to death long ago, but are being kept on life support by friends with access to zero-interest credit, in a fake-it-til-you-make-it pump-and-dump “promotion stock” frenzy.
All of these become become playgrounds for short-squeezers and all the other market-manipulation games. Where are the cops?
So negative real interest rate makes it easy for large funds to manipulate markets.
Isn’t that by design: Didn’t Fed enabled these rates for the same reasons?
Factor common to both…zero interest credit.
(With horrible macro inflation as a very special bonus).
DC has been courting this cancer a long time, and the longer it got away with it, the more brazen it became.
Lol, Cramer had a full segment today highlighting the correlation of 7 large spikes in Gamestop’s stock price over the last 18 months with large (multi-trillion dollar) sell-offs in the overall market.
I’m sorry, but in what reality is a little brick and mortar video game retailer with less than a 10 billion dollar market cap able to legitimately move multi-trillion dollar markets unless there’s something much bigger at play?
Everyday you can find articles to the effect of “Forget Gamestop.” Why would they care so much about a bunch of “internet kids” who have a few dollars to waste on a stock that Wall Street is confident will be bankrupt in no time?
GME….look at AMC. It is MEME number 2 stock. It dropped 41%
Contrary to popular opinion, I think it is the hedge funds that moved MEME stocks, not retail investors. It is indeed a dirty way to make money, as Charlie Munger said last year. They certainly made a killing, thanks to Jerome Powell.
Yes, all the stocks in the “meme basket” are highly correlated, (with statistical p-values approaching 0) whether it’s GME, AMC, KOSS, EXPR, BB, BBBY, likely due to swaps baskets and other murky financial instruments that are NOT available to retail investors. (Look at any of these tickers overlaid with any of the others to see this illustrated. It’s very clear.) This is big money manipulation, and they’re trying to pin the blame on ‘internet retail’, which is laughable.
Stauton,
You have no idea how much anger is in the millennial community towards govt and wall st. They view these two as one and as an enemy. These kids know they were f’ed and they are just playing war games now with them. The money they lose is just the cost of playing the game.
Watch what happens if they don’t get student loan relief.
“ Watch what happens if they don’t get student loan relief.”
Watch what happens if they DO get student loan relief…
The middle 20% of voters who determine the election outcomes may weigh in on that…
And I don’t mean in a good way for Democrats…
Please give me one good reason why college students should get their student loans wiped out.
If you take out and sign a loan for a house, a car, a refrigerator, a student loan, or a credit card, you signed the loan and are responsible. No whining, No bailouts about being only 18, 21, or 55 years old.
Buyer beware on interest rates and monthly payments.
The high cost of college education is a different matter. In order for the US to lead, it is in our country’s best interest to fund education. Just like every other first world country that offers government subsidies.
We should start in High School with a required course on loans and predatory lending.
These twirps are just being impatient. I didn’t buy a home until my mid-30s, and I’d been working crazy hours for years for that down payment. Now I’ve paid for my home for almost 30 years and yes, it is cheaper for me than for them, at the moment. They can talk when they’ve walked the walk.
Oh, and I paid my student loan in full too. And these little jerks are mad at me? For a transitory set of changing financial conditions, they can’t predict, but arrogantly think they have all figured out?
Bob,
Tell that to the bankers that keep getting bailed out with my money. They got bailed out in the GFC and again during covid.
BTW, I am now old enough to retire but can’t because JPM stole my pension money. They claim they just don’t have a record of my pension account. Their rep told me straight out they have done this to other people as well. I told her to pay attention, she’s next.
Petunia,
Different subject but I agree.
Lehman Brothers and about 500 banks went under in the GFC. A normal employee probably didn’t get anything for layoff compensation. However, executives walked away with millions. The rest of the investment firms got bailed out and multi-million dollar bonuses continued with the bailout money.
There is no contract for employment with a Non-Union at-will job.
If a company declares bankruptcy, pensions are mostly wiped out to pay bond-holders and stockholders. Or raided by Venture Capital firms to pay off their fees before they wipe out the company.
Pensions are also wiped out for local governments that default.
Currently, you should only work for the Federal government to guarantee a pension. Run for Congress, and you will be in good shape. Until someone gets elected who is willing to vote to slash their own pension.
@Petunia re: Lost Pension –
Great opportunity to remind everyone to make and keep paper hard copies of key financial records! Individuals need documentation of assets that will stand up in court, if a counterpart such as a bank ever “loses” their copy.
Don’t let the banks lull you into a false sense of security with their self-serving claims about electronic records saving time, trees etc. If they screw up, it’s your a** on the line, not theirs. Trees are a renewable resource … your life isn’t.
How to decide what to keep, what to shred, what to store electronically? Ask yourself what’s potentially at stake and whether you’d be willing to take the hit in a worst-case scenario. Google “Personal Record Keeping” for more detailed advice, or check with a non-conflicted accountant, financial planner or attorney.
Wisdom Seeker,
I download and save the PDFs of all important financial and tax documents (and the few that come on paper, I scan to PDFs), and keep them on a USB drive “off the machine,” with a copy B off-site — instead of three file cabinets full of paper with no off-site backups. This way I can keep ALL documents forever without space limitations, and I can find them instantly.
My advice: Forget paper, but yes, DO KEEP COPIES of all important and not so important records (bank statements, credit card statements, receipts, tax stuff, etc.) on a drive off your machine, and Copy B off-site.
wow thats really very interesting. I thought the whole issue was that robinhood stopped the trades of the internet horde (with free accounts) in favour of their profitable customer Melvin Capital. Same as the LME did recently just stopped out profitable speculators. Which they can argue about in their terms of service.
But the stink is because some people with Gamestop shares aren’t getting the extra 3, because they don’t really own any shares they’ve just been told they do so its going to be simple direct fraud and evidence all over the place !! (is this what you mean by synthetic share in this case, one that doesn’t exist?)
Why would Ryan Cohen conduct insider trading out in the open? Doesn’t anybody fear the SEC any more?
So many people are getting away with financial crimes these days, people feel entitled to illicit gains.
We’ve gone full Bastiat: ““When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
It’s time to re-criminalize and prosecute many types of conduct that today seem commonplace, but historically were – and ought to be – deeply criminal.
Totally AGREE WS!
Exactly why we have been OUT of the stock and commodity markets for many decades now…
Learned the hard way, back in the day, those mkts are just a casino designed exactly like all other casinos to part gamblers from their money.
Calling them investors does NOT change any part of the relationship of the vast majority of stock gamblers/suckers to the cons doing the con.
Sounds more like Blood Bath & Beyond.
Is there an echo in here?
Wholesalers need to get smart and sell e-commerce direct to consumer and make more profit!
Manufacturers in India and China and other countries have been selling directly to US consumers for years via third-party vendor platforms, such as Amazon.
They’ve calculated that for probably 100+ years now. It’s just the risk/reward measure for wholesalers that keep retailers in business.
“In the end, this is the classic story of a brick-and-mortar retailer with lots of big stores that got run over by ecommerce.”
Precisely. Another story of a once-viable business model that is now outdated and obsolete.
BBB did once have a legitimate retail angle with their extensive and focused selection. But that model grew during the tail end of brick and mortar retailing’s heyday, and they were late to the ecommerce game.
In the interim, their customer base learned much of the BBB inventory was easily available from other online sources. And that trip to BBB (“because they are the only ones who have it”) became unnecessary.
All of their previous brand loyalty was to the physical stores and the novelty of their unusually large selection. That is gone now and there is no pathway up. Only out.
BBBY made a nice “catalog store” where you could touch the inventory and then buy it elsewhere online.
Right. A friend of mine refers to Best Buy as “Amazon’s showroom.”
Hard to sell stuff if vendors stop supplying. Play ball? DIP???
We pride ourselves on capitalism in which there are all kinds of hopes and dreams. BBBY was never a great place to shop. So it finally failed. The reality as always is that the buyer is responsible for due diligence. Unfortunately, the 10K only gives us required information. My former employer had lots of strategies not written into the filings. Things like looking for a buyout, thinking of an acquisition, hiding a massive liability, etc. We never can know all of it. Following the fed direction makes sense. Well established dividend payors make sense. CDs make sense (cents). Everything else is a gambling bet. GS motto is eat what you kill. How nice. Caveat Emptor!
I agree with the person that said Cohen probably did not do anything illegal. When one has millions invested in the stock of a distressed company one can afford to hire people to check on business status such as vendor payments. In the oilfield with companies such as Sandridge Petroleum pre bankruptcy the status of payments was well understood by the vendors. Cash before work was common.
Cohen for investment in a company like BBY most likely had a staff of professionals checking credit history and verification of bank balances. There may have been information in the sec filings mentioned in the comments above. Like Wolf says both types of investors are gamblers. Anyone in the markets can experience losses.
Purchasing power of the dollar continues to erode.
Cost of ownership of a home continues to grow faster than the rate of inflation because utilities and taxes are growing faster than the rate of inflation.
BBBY didn’t get wiped out by ecommerce, it got wiped out by other discounters. Everything you can buy there is available elsewhere and everywhere. Ask any women you know where they buy housewares and it won’t be at BBBY.
I stopped shopping there years ago because I hated their coupon strategy of offering discounts only to coupon holders. I knew if I didn’t have a coupon I was overpaying. I would rather have a discounted price everybody pays.
“billionaire got out in time”
There it is. Just as suspected the first time media started hyping “meme stocks” as a “rebellious retail traders”
A clever psyop to get the idiots to bailout the big boys and social/dinosaur media outlets parading it as a “revolt.”
Exactly. Everything was—and probably still is—overpriced by 20%. It took a placemat-sized coupon to make their prices competitive. That pretty much ruled out just popping into the store—because your coupon was at home on the kitchen table.
I haven’t been in a BBB in maybe 20 years. Like Blockbuster, they sort of reek of the 1990s to me. I’m baffled as to why BBB’s management was incapable of updating and adapting. Perhaps they were intransigent with more than their coupon policy.
The WSJ had an article about BBY a couple of weeks ago, and Petunia’s experience is far from unique. I tried their order/pickup a year or two ago and it was a fustercluck. The item I ordered was up front as promised, but the only key was apparently out to lunch with the manager. Haven’t been back since.
Kohls and Macy’s has the same strategy with 15%-30% off coupons arriving weekly (only if you use the Kohls/Macys credit card and hopefully(for them) pay 30% interest on your buying spree).
I loaded up a cart at Kohls once and paid $20 with my 30% discount and Kohls Cash. I asked a manager and he told me that he makes it up in volume. I took it that he makes it up in volume on customers without coupons.
Take yer pick:
A mini Sears on a short track.
Classic pump and dump by one guy for $69m
FOMO “investors” fka More money than brains club.
I dunno, this is all crazy stuff.
Even the profit is literally a meme number, you can’t make this shit up.
COWG,
“I don’t know about you, but I don’t see it my responsibility to fix stupid…”
And therein lies the problem. If you don’t want to make younger people smarter with greater critical thinking skills, then you are shunning your duties as a citizen.
There are way too many people who have this “I got mine, sucks to be you” attitude.
Jon, my experience is that “younger people” don’t seem to be interested in being educated by “older people”. They already know everything and in any case things are different nowadays.
In the end, the “younger generations” will have to relearn the hard lessons the “older generations” already paid for. C’est la vie.
“… then you are shunning your duties as a citizen”
Horse to water, et al…
My duty as a citizen is to pay my taxes to pay for and make available the minimum required education mandated by the government…
It is not my duty to determine whether or not that education was effective…
Do you think a video on commodity arbitrage is going to get more views than a video of a cat coughing up a hairball ?
I.. rest…my…case….
“ There are way too many people who have this “I got mine, sucks to be you” attitude”
On this we certainly agree… many people who got lucky in the last 40 years actually thought it happened because they were smart…
The most generous people in the world are the ones who struggled hard to achieve their wealth… Not only will they give advice on how to be successful, they will also share their mistakes…
That, my friend, is the education you really want…
Our generation created the internet, with the sum total of all human knowledge available from your toilet seat. What young people choose to do with that is up to them. They can spend all day on tik-tok and IG, trade meme stocks and crypto, or they can read excellent blogs like Wolf Street.
It’s not my job to be the parent of other people’s offspring. I spent my time educating my own in financial matters as well as their social responsibilities.
The government requires a license to fish, hunt, drive….. but no license that demonstrates the minimum skills to raise a child.
Good article and comments..thank you.
Why is anyone surprised 🙀 that this goes on.
The SEC…aka Gary Gensler… didn’t get that job because of his stellar work at the CTFC.💸😂💸😂💰🤪🤪🤡🤡
The interesting part come when some that want to hurt the US financial system start to play Wall Street games at Wall Street too. What do the SEC do then?
“Numerous other brick and mortar retailers were liquidated in bankruptcy court in recent years, including Toys ‘R’ Us”
I get that Toys ‘R’ Us had problems adapting to the internet age, but I’m under the impression that the deathblow was really a leveraged buyout and years of debt growth driven by private equity… Good ol’ Bain Capital, destroyer of several of my favorite childhood retailers. They also killed Kay Bee Toys, which was actually an extremely early entrant to e-commerce and may have been just fine had they not been gutted and laden with huge debt by Bain Capital.
Brick and mortar retail absolutely can exist and thrive in the internet age, but loading up with easy debt has been all the rage from Greenspan to Powell. A lot of these failed/failing retailers have been gutted and turned into debt vehicles, either by private equity or by their own executives. And who can blame them? Our government and central bankers have worked tirelessly for at least 4 decades to create a financial environment that not only incentivizes, but is dependent upon massive debt growth and economic inequality. Meme stocks and a stunningly sluggish Fed are just signs that we’ve transitioned from a regulatory environment that simply favors fast & loose credit to full regulatory capture.
Yes, PE had a lot to do with the demise of Toys R Us. The result was that Toys R Us, which had essentially no debt before the LBO, was so over-leveraged after the LBO that it couldn’t fund an aggressive ecommerce strategy.
The early collapses of the “brick-and-mortar meltdown,” as I have called it since 2017, were all PE LBOs. I’ve documented tons of them over the years. They were the weakest, and they went first.
In terms of the switch to ecommerce, Macy’s pulled it off — and it wasn’t over-leveraged and is publicly traded. It invested a huge amount in ecommerce, created a whole tech division of something like 1,000 people in San Francisco that created and ran macys.com, and it built the infrastructure (fulfillment centers and transportation) to make it work. The cite was and maybe still is one of the top 10 ecommerce sites in the US. And every year, Macy’s closes stores when the leases come up for renewal, and it sold most of the stores it owned. Its brick-and-mortar footprint today is just a small fraction of what it was five years ago. I have always admired how they managed to pull this off. But its brick-and-mortar stores are dead.
Other retailers, such as Toys R Us, had a half-assed ecommerce site and no infrastructure, and they tried to get people to come into the store, instead of getting them to buy online. They all died, or will die.
Bed Bath & Beyond has done a pretty good job on its ecommerce site, and I’ve used it, and it’s good. Just make sure you have it delivered, and don’t try to pick up at the store — as others here have pointed out. But it has these hugely expensive cash-suck stores to deal with that are now dead, and that just doesn’t work.
The common thread among failing retailers seems to be unsustainable levels of debt and bad management or PE plunder more than just the simple onslaught of online retail. Lots of other big box retailers are still doing fine in-store. Target/Walmart, Costco, Home Depot, TJ Max, Ikea, etc. Best Buy is very much like BBBY as a fellow 1990s-big-box style retailer, but they’ve remained profitable even up against huge internet competition in consumer electronics and the obscelecense of CDs/DVDs. Nordstrom is a profitable direct analog to Macy’s, and while the dated mall anchor model is probably running dry, their Nodstrom Rack stores seem to be packed with customers and doing great (at least around here). E-commerce is definitely a mover of mountains, but I think it’s waaay premature to say that it’s killing all brick and mortar retail. I was at the local Ontario Mills outlet mall here in CA’s Inland Empire last weekend and it was packed shoulder to shoulder still going strong. Smaller/older malls are the ones that are dying or dead. Physical retail has changed profoundly, but it still serves a purpose next to internet retail. I suspect that will continue.
Boscov’s and Von Maur, both privately-owned, are still going strong. Bergner’s, Our local Bon-Ton nameplate, still had quite a few customers when Bon-Ton went under. The trick seems to be to keep the stores in good shape and not cut everything down to the bone.
ToysRUs, Kaybee Toys, Sears…. RIP
Acquired by Venture Capitalists but instead of improved, milked to the last drop by loading on debt.
Capitalism at its worst.
what about you? are you going to get out in time this time round?
BBBY was a piece of crap for the entire time covered by this discussion, to any one with a brain. That some bunch of fools threw money at it and lost it, that some clever guy decided to stand under the waterfall of sucker’s cash, wow, that is the most basic logic of all. How is this Powell’s or SEC’s fault? I didn’t hear any material misrepresentation by Cohen. Yeah, he was kind of posing as an activist investor (next to an absolutely doomed property), but he never made a binding promise to continue the pose. All these “investors” should get some education. And it is basic, fundamental, not-at-all-new stuff. Bubbles and manias (and all the fools and knaves around them) have been in finance steadily for 300+ years now.
They alienated half of America when they dropped Mike Lindell’s product line for political reasons.
Way to go bankrupt. Screw BBB.