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Comment by wjnc | Hacker News Reader

"Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels."

You will lose all your money unless there is an unanticipated improvement in business condition! I love how you just can't bullshit in your SEC-filings.

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They know very well that the kind of people who read these filings are not the same kind of people eagerly buying their stock at this point.

This, the Hertz management know there's a huge disparity of knowledge/wisdom in the market and taking full advantage. SEC filings/proceedings as the regulation dictates (though it can seem tongue in cheek in the specific language), but on the other end are all the Robinhood accounts ready to 'invest' from the convenience of their respective mobile phones, enabled by a ridiculously low number of clicks/taps to open an account.

Yeah, they’re nothing like the sophisticated, mature investors that are buying 30-year government bonds that probably won’t even keep up with inflation.

To phrase less trollishly: there aren’t a lot of good investments now, and even government bonds seem overvalued.

That's called "financial repression". Sorry that it causes you to take excessive risks, there are many like you.

Walter Bagehot, the de facto founder of The Economist, was of the opinion that people will never stand 2% rates (and he meant plus :) ). They would rather fund anything, any project, the weirdest thing that offers any hope of yield; no matter how stupid.

And here we are, 143 years after Bagehot passed away. Sir, you are still absolutely correct!

Wouldn’t it be more accurate to call it “financial entitlement”, to believe that your capital would always have positive value?

While we’ll likely never run out of need for human labor, it’s very possible we’re running out of capital investment opportunities that realize a risk adjusted return above 0. “Too much money chasing too few deals” and all that jazz.

I totally agree that growth and gains on capital are not a given, but:

1) The world's real GDP is still going up. Or at least has been till 2019.

2) Even if it was to slow down and remove prospects of gains on capital - it still doesn't mean that people will adjust quickly; you'd have to rewrite the entire concept of pensions for starters.

3) It seems to me that core rates are seriously manipulated down (interest rates, default spreads, equity discount rates); just look at ballooning of the balance sheets of pretty much everything, or look at the share of "zombie" companies, that is companies that cannot even service their interest payments.

3 is of course just an opinion, but if true will result in serious clogging of the machine with useless actors. 3 is where, I believe, things like "bullshit jobs" / "the office" come from, for example.

Agree with your points, hard to know what the future looks like but it’s clear it’s not going to look like the past.

BTW, as far as I can tell - the only thing that is still "working" is the Fourth Turning theory. It's a bold theory that many people have called bullshit, but it has worked well since the publication in the 90s. And of course matches the known pre-publication history dating up to a few centuries ago.

I wouldn't call it so much BS as "lacking in testable predictions." I think of it as string theory for history, minus all the math.

>> While we’ll likely never run out of need for human labor, it’s very possible we’re running out of capital investment opportunities

Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.

Now I definitely see an end to passive capital gains in traditional financial markets; there's a lot of money sloshing around with not enough good places to put it. Anything near-passive (i.e. real estate) is also feeling similar pressures. It seems like a great time to build big projects that take a huge amount of money, I'm just not on board with pure public funding and all the issues that go with that.

I'm becoming less and less bullish on automation. It may be stupid, but I think that a lot of commmon tasks are functionally un-automatable, or at least not at an acceptable level of error.

Think about something as simple as phone support for pretty much any product or service. There's a ton of automation being employed there to relatively little effect - just try to do anything meaningful at any company yourself and you'll find you need to be shunted to a representative.

I recently needed to switch my phone plan ownership from a personal account to a company account. There were a couple of wrinkles that made my case more complicated than normal which I can't share. Despite 4 or 5 calls, I couldn't get it done. It just didn't seem like the process for doing this type of transfer didn't exist in any codified way. I could explain what I wanted to do in plain language, but it wasn't a valid transition. Not only was it invalid, it seems like nobody at this major phone provider had ever planned for this scenario to happen.

Now imagine this scenario under full phone support automation. The system wouldn't even understand what I was trying to do. You could definitely argue that you could design some sort of scenario router that might handle a situation like this, but it seems unlikely that if they couldn't come up with a human process, I doubt they could swing an automated one.

Something like AGI could handle a problem like this, but it feels like we're dozens or maybe hundreds of years away from that.

> I couldn't get it done.

It's quite easy to automate that outcome.

> Now I definitely see an end to passive capital gains in traditional financial markets; there's a lot of money sloshing around with not enough good places to put it. Anything near-passive (i.e. real estate) is also feeling similar pressures. It seems like a great time to build big projects that take a huge amount of money, I'm just not on board with pure public funding and all the issues that go with that.

Carry this a little further, and this means either the death of the concept of retirement as we know it.

> Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.

Here is really the only hope. If we can recognize one day that it's just plain not necessary for humans to labor for ~50 years between ~20 and ~70, leaving them only with their "golden years" -- the ones where serious health problems start to take the life out of life.

I don't know what to call this type of society. It certainly wouldn't be "capitalist" in any real sense. It may be "post scarcity," but not necessarily. Perhaps it will be some weird techno-socialist thing?

We're out of investment opportunities because the Fed keeps creating new money that immediately fills them rather than letting the market do so. The bond market bailout of a few months ago could and should have instead been funded with existing money, with a corresponding rise in bond rates. Expecting that a steward won't wantonly inflate away the currency is not "entitlement". And to the reality that these institutions are no longer constrained by notions of decency, people will move away to non-corrupt currencies.

I admit that I have very little knowledge about bond markets, but when you talk about moving away from "corrupt currencies" aren't all goverments / EU doing something similar just now? (is China?)

Everyone is in a deep trouble and trying to outprint themselves out of a problem. Even Germany (one of the best govt balance sheet country on the planet in 2019, going full Keynes and actually paying down their debts during the up phase of the cycle) may see a ratings downgrade. The CDS market is toying with this idea.

We don't know which type of volatility are we going to experience, the left tail or the right tail. So far major currencies are actually strengthening (deflation) against consumer baskets, but it's early days, I think.

Maybe even neither!

In either case, I'm watching the bond yields (while they are still visible ;) ), various consumer inflation measures and most importantly gold. Gold will tell you what's going on.

The thing about printing money though, is that if everybody does it, it negates a lot of the effect. That means that if you want the effect, you have to print more and more to keep up. The only other alternative is to realize that money is essentially a fictional construct that keeps capitalism moving forward, and to consider that people may not need to be slaves to some numbers in a computer system.

That was my very basic understanding of it. At which point you have to wonder when a market driven economy actually becomes a planned economy.

For me, and I think for many others, this is precisely the long term problem with printing: it is the exact opposite of capitalism.

he whole point of capitalism is to make capital scarce, and thus necessarily rejecting certain ideas (prospectuses), prevent them from being funded. If everything gets funded/rescued - what is the point?

> Walter Bagehot, the de facto founder of The Economist, was of the opinion that people will never stand 2% rates (and he meant plus :) ). They would rather fund anything, any project, the weirdest thing that offers any hope of yield; no matter how stupid.

That sounds very much like a description of the modern VC ecosystem.

Were those 2% meant at the then-current 0% (or even negative) inflation or adjusted to modern inflation levels that tend to hover between 1 and 2%?

Presumably they were meant to be real (inflation adjusted) return, rather than nominal.

And it's true that between 1880-1900, inflation rates tended to be low or negative (the latter is NOT good for an economy, BTW), but the rest of the 19th century saw highly volatile inflation rates, ranging from -15.75% to +24.75%, if this source is to be believed. Not great for long term investment.

https://www.officialdata.org/us/inflation/1800?amount=1

> To phrase less trollishly: there aren’t a lot of good investments now, and even government bonds seem overvalued.

Yes, and a bankrupt pile of garbage is not one of them, as any even half-sophisticated investor would tell you. You don't need to be up to your neck in 30-years to know buying a bankrupt company is a bad investment.

This is honestly not something I thought I'd ever have to type out in words on a forum full of tech folks.

I think they're more similar than you might think.

The only way you're going to make any money -- at least in real terms -- on government bonds is if interest rates go even more insanely low so you can dump them on another superoptimistic person.

Similarly, those who plan to buy the "IBO" shares are probably expecting to profit when some good news comes up and bumps up the price long enough to sell.

They're both built on the assumption of being able to dump the security on another sucker.

so it is a ponzi scheme?

They are not investing, just gambling. And looks like they are going to have fun anyway...

But even when you're gambling, why should you gamble by going long on an asset with a nearly guaranteed long term value of $0 rather than one with a neutral or positive outlook?

Sure, you may get lucky, but the odds are unfavorable all along.

> But even when you're gambling, why should you gamble by going long on an asset with a nearly guaranteed long term value of $0 rather than one with a neutral or positive outlook?

Because the odds on Hertz may actually be better than the odds in a Vegas casino and these people play that anyway?

Gambling odds are never in your favor--the house always wins.

Gamblers are always going into a situation where they are going to lose. The only difference with the Hertz situation is that if you can offload your stock to the next sucker before it tanks out, you "win".

That's pretty good odds for a gambler, actually.

> Because the odds on Hertz may actually be better than the odds in a Vegas casino and these people play that anyway?

The alternative I was thinking of was not a Vegas casino, but some other stock, or a derivative thereof.

Maybe options. I know a lot of people play OTM options and penny stocks as gambling.

Exactly, it's crypto all over again. People don't understand the assets they are buying; they just see upward trajectory and think guaranteed profit.

Well, unlike crypto, there is nonzero probability of owning a stake in real assets with Hertz.

Nah, they'll wind up the entity and list under a new ticker. It's the same probability of owning a stake in a company as when gambling on crypto -_-

I get the tongue in cheek nature of this, but it is held up by fundamentally unsound assumptions from unsophisticated investors. bonds are much less boring than retail investors think they are.

Nobody is buying government bonds to beat inflation, nobody cares about the coupon payments. They are trading them on 10x leverage, its the price of the bonds that matter.

You can get 10x leverage on straight up 30 year bonds, and you can do way more in the bond futures market.

All you are doing is frontrunning the central bank. or going short. or trading options on bond futures.

and that's just US treasuries. other country's government bonds are interesting, and then the rest of the yield curve is full of fun quirks too.

The credit markets are actually pretty wild.

Similar to the period 1973 (first oil crisis) till 1981 or so, no obvious good investments anywhere.

There will be plenty of (legitimate) lawsuits if equity holders take a loss here.

why? AFAIK since they're in bankruptcy, they have zero obligation to shareholders, only to creditors.

That's not really how it works. You cannot do an equity offering if you believe there is a good chance the value goes to zero. And the "obligations" are merely a starting point in negotiations. A strong starting point, for sure, but not set in stone.

Only if they misrepresent the situation in their SEC filing, which (if you read the risks section) sure doesn't seem like they are.

there's at least a 1/2 dozen instances of "because we are in bankruptcy protection <potential bad thing>"

But they are doing an equity offering? Got it.

Their shares irrationally have value on the market, issuing equity allows them to pay off more of their debts. Why shouldn’t they issue, it’s the company’s job to release accurate information, not to force the buyers to make wise decisions.

If someone offers you millions of dollars for your totaled car you’d be a fool not to take it, this is no different. Hertz management must be loving this.

If the company knows stock purchasers are making a bad decision it would be obvious negligence.

Only if they don't disclose the serious risks involved, which they do, right up front in the very first few sentences of the filing.

no, every broker has a lovely warning about the nature of sec regulations and financial instruments risk of losing value. Negligence is in the investors lack of due diligence. Its why publicly traded companies must publish financials and why cooking the books is illegal and fraudulent

Shareholders are creditors, of a sort. They're just the very last ones in line.

No, they aren't. The retail market for business ownership is not a debt obligation, it is equity. Basic definitions

I find this disturbing, a corruption of the system, despite the disclosure, and despite that I personally like to read SEC filings.

Just telling people something is a scam is not enough, when the action of allowing it to go on implies that it must not be.

It's like, suppose you go to the hardware store and you buy a rake. And on it there is a label with the standard warning "this contains substances known to the state of California to cause cancer, etc.". So you buy it, take it home, and a month later you die horribly because it was radioactive or something.

You can argue about the percentage of guilt that accrues to the manufacturer, the store, the California lawmakers, etc. But it's not right to blame the victim, because when people get conflicting information, they have to disregard some of it, and you can't consistently go against the herd in such situations. It's necessary to have a level of trust that underpins the explicit language and gaming of rules that people engage in.

I know not to buy stock in bankrupt companies, but I don't think I'd be as dumb as the stereotype of Robinhood investors if I was naive enough to think, "well, they say it's worthless, but if the SEC allows it, it must not be a complete scam" and bought it anyway.

Your rake analogy is a little flawed, just because those "known to the state of California...." warning signs are practically everywhere. If they were actually rare, and this rake was the only thing in the store that had the sign, and the store was requiring a liability waiver to buy one, then you'd have a much closer analogy. In that scenario, given the multiple warning signs (including an actual, literal warning sign), I do think it's fair to say the purchaser holds some blame for being a dumbass. The legal system might say otherwise, but, if you do something that you've been warned multiple times is really, really dumb, by who should know you're about to do a dumb thing, then personal responsibility needs to accrue somewhere.

It's a matter of opinion on how much this warning stands out. I don't think there is going to be a special waiver to buy Hertz stock; the whole point is to be able to go directly to the public in an unrestricted manner.

But let's stipulate that in some sense the warning is rare and extreme, that doesn't affect my opinion. If a new Apple laptop came with a warning that violation of a license would result in earth falling into the sun, the severity and rarity wouldn't make you say "gee it really might happen". You might look into whether it was really from Apple, if it was a joke, what other people thought. If millions of other people were buying them, you would assume that it can't happen, because the validation of things people do overrides the warning regardless of severity.

Deceiving someone by telling them the truth in a situation where they are conditioned not to believe it is not a trick that somehow transfers responsibility. It's not better than directly telling a lie. It's worse, because it sets people up to believe the next lie after you've proven they were wrong to ignore the truth. It's like, I don't know, cargo cult morality.

I wouldn't believe for a minute this is ok to buy because I'm untrusting. But if I trusted the SEC or the laws and concluded this can't be a scam, because it would be illegal otherwise, then it's a mark of corruption and rot in society to punish trust in the system as stupidity or lack of responsibility. The very fact that it is being allowed creates genuine doubt in my mind about who to believe and what's going on, even though I would not make the decision to buy.

Let's say Wertz Car Rental IPOs tomorrow. Why would you go out of your way to buy something you know nothing about, instead of just ignoring it?

Answer: because you bought a broad market index and didn't expect the standards to retroactively drop and let it get stuffed with junk. This is how the economic crash of 2008 happened.

I think you're changing the subject?

A broad market index fund is not realistically affected by Hertz at this point, because the market cap is minute and the index fund simply holds all (most) stocks in proportion. The index fund inherently doesn't buy more stock just because it's cheap, if it's cap weighted.

So, while I'm not sure exactly what you are saying, I've seen other comments where people are upset at their index funds being somehow disturbed and it seems like nonsense to me.

I guess this episode raises some questions about equal weighted index funds, but those are relatively rare.

Not to mention, I would think that even total market funds sell bankrupt companies. You have to have some standards.

But in any case, worrying about what Hertz does to your total market fund seems like worrying about what a bug on your windshield does to your gas mileage.

The intersection of buying their stock this past week and people who read SEC filings rounds down to zero.

Sweet potato pie! Read the entire "Risks" section it goes something like this:

Smithers: What would each of you say is your worst quality?

Man 1: Well, I a workaholic.

Man 2: I push myself too hard.

Hertz: Well, it takes me a long time to learn anything, I'm kind of a goof-off...

Smithers: Okay, that'll do.

Hertz: ... a little stuff starts disappearing from the workplace...

Smithers: That's enough!

Not that far from Uber IPO filing tbh.

I would be happy for Airbnb And Uber both to go.

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Debt is senior to equity.

Robinhood traders buying anyway, what can you do.

It hertz to admit the level of frequency that that's true.

60 times per second.

/Sorry, I couldn't help it.

You cannot make tendies day if you read the fillings.

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