Bed Bath and Beyond files for bankruptcy
nytimes.com
nytimes.com
As usual Matt Levine's take on this is a good read.
His Monday April 24th, 2023 newsletter, titled "Bed Bath Moves Beyond", covers the situation once again. It ends:
"Bed Bath saw that its retail shareholders wanted to throw their money away, and that its sophisticated lenders wanted to get their money back, and realized that there was a trade to be done that would make everyone, temporarily, happy. So it did the trade. It’s amazing. The lawsuits are gonna be great."
Why can you be sued because idiots convinced themselves you were a good buy while you were showing everyone your terrible finances?
BBBY did this in a roundabout way, by signing a deal with HBC, where HBC sells BBBY stock in exchange for cash...
I'm not clear on why your next sentence is:
>But it is clear they were doing it out of bad-faith to the new investors.
Where is the "bad-faith" in caveat emptor?
Every single filing with the SEC contains language that is basically 'holy shit we could go bankrupt tomorrow because billions of reasons' - that's different from "we know we're going down, but we can fleece people on the way down" - though it will be hard to prove criminally in a court for BBB and GameStop, likely.
The short answer is that no, the label gluten free alone does not say anything about cross-contamination.
So I think that the "gluten-free" labels on things that obviously would not have gluten in them (e.g.: bottled water) is absolutely about advertisement to people who have been trained to think that "gluten-free" is always a good thing.
And even within Celiac disease there are a lot of variations. My mother has been diagnosed as Celiac for 50 years (back before most doctors had heard of it, and she almost died from malnutrition pre-diagnosis). She obviously avoids anything that has any mention of wheat, or has been cooked in the same oil as glutenous food; she generally avoids anything that mentions "possible cross-contamination" on the label but doesn't have to be a total stickler. I don't think she's had a serious attack in many years. A friend of mine was diagnosed as Celiac maybe 10 years ago, and is incredibly sensitive - despite his best efforts he seems to end up with horrible symptoms every couple of months or so just through tiny amounts of contamination.
The FDA limit for claiming something is "gluten-free" is 20 ppm; I believe that level exists partly because it's very hard to detect anything less than that anyway, but it also fits in well with what most Celiac sufferers can tolerate.
Were a bunch of people buying into the meme stock hype? Sure.
Does that make them financially illiterate?
Well, the folks who bought Hertz sure look pretty damn smart in hindsight even though at the time they were being described in similar ways, so... who's to say if they are illiterate or just have a different view of value and risk?
The problem with being "right for the wrong reasons", is that your logic fails to apply to future situations.
The "wrong reasons" in this case, is the obvious ego-tickling / ha ha the other people were wrong that's obviously intrinsic to the gambling / meme stonk trading culture. I'm sure it feels good when you're right for the wrong reasons, but I don't think it leads to long term success. ("Royal You", not you in particular, if you don't mind).
But yes, it does feel good to be a contrarian and win due to dumb luck. But I'm not sure how many times "Hertz" situations will pop up in the future. I think this ego-tickling / contrarian mindset is at the root of this behavior, at least based on the discussions I have in my social circle / meme stock traders I'm aware of.
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There's also "wrong for the right reasons", which is my preference in general. You generally want to be wrong today, if it means that your logic holds for most future cases.
If I were to offer you $1 for heads and $3 for tails and you chose heads and lost, I’d win the bet but it’s still a bad bet.
I'm saying it's unfair to assume it's proof someone is "financially illiterate", i.e. uneducated or stupid.
Educated people can have different assessments of risk.
Assume, sure. But you could follow along on Twitter or StockTwits and see why many of these people were buying Hertz. That's the beauty of modern times. I certainly didn't see many doing risk analysis, it was mostly "Burn the shorts!".
And, many people bought all the way down from $20 to get an $8 payout.
As much as the APEs want to compare this even to Hertz... Hertz wasn't printing hundreds-of-millions of shares in its troubled time in 2020. (They tried to, but unlike today, a judge shut that attempt down).
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So on the question of "what if the apes just pump the stock up and everyone makes money?". The "financially literate" counter to that question is rather simple: how can the stock price go up if the board of directors is printing 600,000,000 new shares? (Note: BBBY only had 117-million shares in December).
If the stock price fails to go up, why would the apes keep investing? If the apes fail to invest, how does BBBY get out of its default with JP Morgan/Chase? And here we are today, with the formal bankruptcy being filed. It was an attempt (IMO, an immoral attempt) to get money, but it did raise ~$700 million from the apes. But that's not enough to rescue BBBY.
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Now this is where Hertz did well by the way, after the bankruptcy. If you really want to gamble "like people did with Hertz", today is the day, post-bankruptcy filing, that you start sinking your money into this stock. I don't recommend it though.
Just because someone does inevitably win the lottery does not make lottery ticket buying financially literate & savvy.
For the same reason, some of the most brilliant minds out there gamble on games of chance, or engage in sports betting, or other high risk activities.
Just because someone takes a risk that you would not take, doesn't mean they're financially illiterate, and certainly you are not in a place to judge one way or the other.
Edit: And as an aside, I can speak to this with some personal experience, as on a lark I threw a bit of money at GME back in the day. Not a lot! Certainly no more than I could afford to lose (and I assumed going in that I would lose it). It was a rollicking good time as I followed the hype cycle on Reddit and whatnot. And in the end I 5x'd my bet.
I don't for a second believe that was anything but dumb luck. And you won't find me running around finding new meme stocks to chuck money at. But I certainly enjoyed myself!
So does that make me financially illiterate?
And gamblers don't usually make money, because they're in it for entertainment rather than making money, saving money, or providing for their families.
Believe it or not, investing is an activity that, under the correct circumstances, leads to the benefit of the investor, the company, and the economy in general. I personally seek this behavior that's beneficial to society in general (and its non-zero sum: I trade liquidity that I have today for the promise of modest future gains). Like 5%/year (aka, the current FFR / risk free rate) to 15%/year on the riskier bets on good years.
People looking for returns much larger than 5% to 15%/year today are gambling. That's just not the speed at which companies grow, so you're betting that other people have undervalued a company, or you're betting on a "Greater fool" swooping in to rescue you. You're not betting on the underlying mechanisms that lead to economic growth.
That sounds very noble.
Of course, the reality is the vast majority of people trading financial instruments do it for one reason: to enrich themselves (or, in this case, to entertain themselves). Everything else is a side effect as a consequence of regulations creating incentives that lead to socially constructive outcomes.
> so you're betting that other people have undervalued a company
That's... kinda the entire point of active trading.
I personally don't believe it. In general I'm an efficient markets guy. But there are a lot of active investors, including mutual funds, hedge funds, etc, that operate exactly on this principle.
Yes. Because the underlying 5% to 15% gains due to general economic growth is one of the most reliable ways at building wealth in this country. It provides a service to companies who need money today for their expansion (through the IPO and secondary-offerings mechanisms). It provides steady, long-term growth to investors looking for a place to park their money.
Its not only good for the country, it is also a relatively reliable way to grow money for everyone.
Betting beyond this is unreasonable, and unlikely to make yourself any money. The $700,000,000+ sunk into BBBY this past 6 months is proof of that. (600-million shares at a bit over $1 per share, as BBBY's board of directors printed 600-million new shares to profit over the Ape's stupidity / gambling behavior). Throwing good money at a company that failed to make its bond payments in Dec 2022, while the Board of Directors is printing stock like no tomorrow is... well... its pretty bad.
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Look, if you're going to pretend that you were gambling on good odds or pretending to enrich yourself... at least choose a stock that wasn't so obviously eating the Apes alive for months. We literally can measure the amount of money that they lost by multiplying the secondary-offering prices with the number of shares printed.
I get that issuing stock is a way for companies to raise capital, but once it’s out there, how does a company benefit when I buy 100 of their shares from you? Is it different than the used record or book market?
The stock value rises because you didn't buy 100 shares from me per se. You bought the 100-cheapest shares on the market, which naturally raises the price.
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Lets say the market depth looks like the following:
* 5 shares available at $95.20
* 15 shares available at $95.21
* 30 shares available at $95.22
* 40 shares available at $95.23
* 80 shares available at $95.24
By buying 100 shares, you'll have wiped out the order book from $95.20, $95.21, $95.22, $95.23, and part of $95.24. The order book looks like the following now:
* 60 shares available at $95.24
This means your purchase has caused the stock to rise in value by 4 cents in this convoluted example.
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Later, when the company sells 100,000 shares in a secondary offering, they'll be able to do it at a price ~4-cents higher than before. Thanks to your purchase. Similarly, each time they put for shares for sale, it adds to the order book / market depth as sales.
IE: The company can't just sell all 100,000 shares at $95.24. No one is buying $95.24 "right now", so the shares simply won't move.
To have a chance of selling, the company needs to lower the price, and offer the 100,000 shares at $95.23 cents. Someone's probably buying at that point, but it won't be for 100,000 shares. Etc. etc. The company continues to search for the price where the market is willing to buy its shares.
But whenever it decides to do this process, that company is at 4-cents higher thanks to your 100-share purchase.
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Of course, all this theory goes to absolute crap when a company with 117-million shares (like BBBY in December 2022) decides to just hype up the apes and sell them 600-million new shares that didn't exist before. Of course the prices would collapse, that kind of environment makes it impossible for prices to go up at all.
There is also a serious moral question here: was it moral and correct for BBBY to sell these 600-million new shares? (And if it was immoral, did they break a law when doing so?). Remember: the board of directors is supposed to represent the will of the shareholders. Was it really the shareholder's desire to be diluted by a 1-to-6 ratio?
Additional printings of stock devalue the current stock / shareholders. Its a way for the company itself to raise money, but at the cost of everyone else.
What you hope for is for the company to do a "share buyback", which effectively destroys shares. The company goes to the market, buys up a bunch of stock and then locks it away. It means all the shareholders become collective owners of those old shares, so everyone's value goes up.
But yeah, you're close. I guess my point is that the shareholders are a complex-piggy bank for the company. Shareholders like it when they get money, they (usually) don't like it when they get devalued. (This odd case with BBBY aside: where meme-stock buyers cheer at the printing of stock that devalued the company)
When their opinions come exclusively from an echo chamber, there's effectively no difference. Visit r/BBBY and you'll find plenty who are ready to hold the stock all the way through BK.
There are some examples that aren't gambles - Movie Pass, you have to be not just financially illiterate, you have to be illiterate to invest in it.
BBBY is probably just Hertz FOMO though.
Hertz was going into bankruptcy in 2020, as the pandemic wrecked their finances. But then in 2021, in the middle of the bankruptcy, it turned out that their fleet of millions of used cars skyrocketed in price, saving the company from bankruptcy. Some other company purchased Hertz before the bankruptcy finished and Hertz shareholders then reaped the rewards as the stock climbed from pennies into $7.
If they just buy and 'hodl', the shooters will get squeezed, and all the holders will make infinity dollars.
After buying mountains of stock, they've come up with insane theories for why this isn't a real bankruptcy, why some angel is going to come in at the eleventh hour to rescue their BBBY and how they will all get 1:1 shares in the angel's firm.
It's flat earth/rapture insanity, except these people are financially invested into their delusions.
If there isn't already social sciences literature on The Unreasonable Effectiveness of Enemy Narratives, there should be, and I'd like to read highlights that exist.
1) There is a lot of volatility in this period. There is money to be made at buying in and dumping it at a small, local spike. A lot of the money is made off others trying the same game.
2) Some of these meme stock investors have been sold a bill of goods. Go check reddit.com/r/bbby to see what I mean. Some of them believe this is a larger conflict between good and evil. There is a belief that will be some eleventh hour deus ex machina event where Ryan Cohen will reveal this is all part of his long term scheme to defeat Citadel or whatever. The shifting narratives are insane, hard to follow and even harder to explain. It's basically financial qanon and it's really sad to see. The execs of some of these meme stock companies know exactly what is happening and are very happy to release unethical, vague statements to feed into the fantasy. But the apes are still buying in to prep for this apocalyptic event.
What have we done with technology that people are getting sucked into these disastrous echo chamber filter bubbles, where any dissenting opinion is blacklisted, turning people into financial ruin and QAnon brainwashing?
You can't just spin off your debt into a new company and declare bankruptcy as you wish, courts are involved, things must be approved. Clawback exists.
Would it be technically possible for a company to buy all of its shares back so that there are no owners? The company would be self-owned.
No, because there's a statutory minimum number of shareholders (which varies by country but is always greater than zero).
But even if this weren't the case, it wouldn't be as weird as it sounds. In most states, nonprofits cannot issue stock, but they still exist as corporate entities.
The directors ultimately control the company. Shareholders are secondary: irrelevant, except insofar as they can vote out the board of directors.
Bankruptcy law is administrative law, so courts are not limited to the letter of the law when assessing bankruptcy proposals; they are allowed to look at the intent of the la as well.
So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? That's starting to smell a lot like the worst sort of crypto trading.
Both dividends and stock selling are normal income tax rate if you've held the stock for less than 6 months and capital gains rate if you've held for more.
Buybacks inflate the stock price, making what you're holding more valuable, even if you don't sell. More valuable assets are useful for all sorts of things, including leveraging them for other activities, or selling them for capital gains.
You are right that you can leverage them in all sorts of ways, but that isn't really what anyone means by making money. It is how you drown folks in leveraged debt that they can't pay back later, of course.
Money has time value.
A bigger downside of dividends is that you can't offset qualified dividends income with capital losses (except up to the $3000 annual limit). And compounding is different because you pay tax only at the end rather than every year. But those are different issues.
While I'm at there's the additional wrinkle that being able to actually get a significant LTCG rate difference by deferring the income really depends on structure of your future income and when in your lifetime you will sell.
Also, it is only in insolvent liquidations that shareholder get nothing back. If the company were to wind up while still solvent, the shareholders would get their share of its net assets. (Though I don't think this happens much with public companies.)
Has this ever happened to a publicly traded company?
Houses can sit empty without tenants for years but they’ll only go up. Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers. Commercial properties can bleed tenant but the prices will only be up.
In a world of shrinking growth , stalling productivity, and dying demographics, the market behaves like infinite growth is baked in.
It’s very clear to any observer that the markets don’t follow any rationality anymore.
My income went up, but housing in my area went up nearly 2x. I’m being priced out of areas I’ve lived in forever.
I feel like a social contract has been violated. Everything, from products to housing seems to be targeted at the “luxury” and “premium” segment. It’s like a omnipresent giant middle finger to anyone but the wealthy.
Unfortunately, a huge number of people like to blame this entirely on evil developers and evil corporations and think that merely adding more regulation on those will make the problem magically go away.
[1]: https://www.cnn.com/2023/03/08/homes/housing-shortage/index....
Also it is really hard to believe that Airbnb is a meaningful impact on housing prices outside of certain touristy locales. My suburban neighborhood has had 5+ offers on every house that has come for sale in the last year and there are no Airbnbs in the neighborhood and only two within a five mile radius.
The only real answer is to build more--not depend on the government to artificially constrict supply by regulating vacation rentals.
I don't think this kind of dichotomous thinking generally holds with complicated real-world problems. They are almost always a confluence of multiple "answers".
E.g., yes, housing supply is probably part of the solution. But so may be integrating policies that disincentivize viewing something necessary (like housing) as an investment asset.
I'm saying housing is a unique form of 'investment' for a variety of reasons. For one, it's an 'investment' that most people can't exit from because you have to live somewhere. It's also an investment that is relatively illiquid. It's also an investment where the majority of Americans wealth (about 70%, I believe) is tied up in, from which they borrow against. It's also a necessity.
These all combine to create an incentive for a bunch of wonky policies that can have negative societal consequences, like artificially inflating the price of housing. So, yes, the fact that it is considered a good financial investment is also part of the reason it creates societal problems.
It would be like artificially constraining the production of food so that those who have 'investments' in food companies can make more profit. Obviously good for the investors, probably less so with society as a whole. Now add a bunch of constraints like the friction of buying/selling those assets etc. and the problem gets worse.
I am not convinced of the narrative that there isn't enough housing.
This has all happened before, and it will all happen again.
[1] https://www.amazon.com/Republic-Which-Stands-Reconstruction-...
A person can't eat more then a very limited amount of food per day, regardless of their wealth.
So what's going to inflate?
You see, when the "We" you reference in your second sentence - who I will actually refer to as "They" going forward (I hope this is not too presumptuous, if it is please notify me as quickly as you can after your 1st or 2nd eight-hour shift and I will update this) - Anyhow, the issue arises when They are no longer sufficiently motivated to infinitely reproduce these iPhones, cars, clothes, etc. for everyone to consume and dispose of. It should go without saying that this state of affairs is massively destabilizing for both We and They.
As the parent to your comment astutely observes, when "everyone is becoming wealthy by just clicking buy" (note: I will likewise be using the term "everyone" in the usual sense, as shorthand for "everyone I care about or know too well to assume financial standing directly maps to moral standing") then there is simply too much money sloshing around for it to continue flowing within the Banks as intended. It then, to borrow a phrase from esteemed economist Dr. Bonzo, begins trickling down to ever lower segments of the population. Obviously, this is Very Bad; and indeed, if this trickle-down continues it may eventually reach populations far below C-level.
That brings us to our current crisis. In the above context, you may think of the money-printer-go-brr approach of 2020 onward as a sort of Hundred Year Flood. What's worse, this flood was already largely concentrated in the lowest-lying areas it was ever intended to reach. Although We had the foresight to levy protective taxes on these areas, even these levees became overtaxed in the deluge and the usual trickle turned into a torrent. Suddenly, even the poor could afford to purchase some of the things they produced. Needless to say, this caused a dramatic decrease in the Productive Misery supply at exactly the moment when We demanded it most. Enter inflation.
Looking back on this disaster, one thing is clear: Though I'd always considered the phrase far too pessimistic to be true, a rising tide really does lift all boats. In fact, these days the yacht gets stuck in traffic so often, I wonder if a third one is even worth it.
E: To be clear I'm not claiming this is sustainable, only how the system is designed.
It's this. America has decided that:
1. The most important retirement/wealth vehicle is your home.
2. Home prices must only go up or your wealth will be destroyed.
3. The government should use it's power to uphold (1) and (2), which results in NIMBYism, all the tax breaks you see around mortgages, and of course the 2008 bailouts.
w.r.t stocks I largely think that was a ZIRP phenomenon, but stocks are allowed to correct somewhat.
It would be one thing if people are leveraging that equity to buy appreciating assets, but too often they are leveraging that debt for depreciating assets.
Quantitative easing, 0% interest, massive inflation - are all just facets of the same problem - that central banks dont work for the common people.
Market looks irrational, but it is rational - money is "free" - so zombie companies can exist. Inflation just ruins the low and middle class, but who cares - it is convenient for governments.
Market was artificially pumped by quantitive easing. Also money is not free for normal people, banks earn interest and that interest comes back as inflafion.
Licence to create money out of thin air is like license to steal.
Is the purchasing power of your savings account shrinking 6% a year from inflation, or it is shrinking 6% a year from bank robbers?
Same effect either way.
I think a closer analogy would be spreading a corn disease.
If I just want to trade my bushel of corn for your chicken, money makes it easier - I exchange my corn for some money, and then I exchange that money for your chicken. I don’t care whether the money is ‘one fricasee’ or ‘ten million gorzebos’ as long as we both agree that’s the number attached to it. You can use something that is a real asset for this, but it actually doesn’t have to have any intrinsic value to be usable for this, as long as everyone agrees to use it.
However, there’s a time element - I can sell my corn, and then keep the money for a while, retaining the power to buy the chicken later. That turns it into a potential asset. During that time, the numbers attached to different items could go up or down - the time element makes arbitrage possible. Even for ‘useless’ assets.
Too much money held as assets can reduce its effectiveness as a medium of exchange - but improving the effectiveness as a medium of exchange can reduce its stability/value as an asset.
Also probably why there is a lot of contention over gold standards etc. - the gold standard improves its value as an asset, while potentially limiting its value as a medium of exchange - so it’s going to depend on which one you prioritize whether you will favor it or not.
Which is great if you're a wealthy oil tycoon from UAE or a Chinese billionaire. But not so great if you work in the city and want to buy a house for your family.
Modern houses aren't meant to survive in most climates, without heating and air conditioning. They grow mold from trapped humidity, and the finishes fall apart from expansion/contraction.
And this is assuming they were properly winterized before being abandoned, and that they don't suffer any damage that allows outright water infiltration (say, wind damage or a tree branch falling and letting water in through the roof or siding) or vandalism.
I've seen some that were starting to have serious problems less than a year after being abandoned. Thousands of dollars of damage already accrued.
[EDIT] Now, keep the heating and AC running at minimal levels and have someone check in on it every few months, then fix any problems that are developing, and that's another matter—but that costs money, and isn't something I've ever seen done with long-term-vacant institution-owned properties.
Anymore? When have markets ever been rational? Markets only line up with reality over the long term. You can point to any instant, and even any decade in time, and point major inaccuracies in the public's collective financial thinking.
> Houses can sit empty without tenants for years but they’ll only go up.
Do you have stats for how much of a problem this is? The problem seems to be vacancy rates that are too low, not too high.
> Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers.
This was a ZIRP (zero-interest rate policy) phenomenon and even then, was very limited in scope. Uber raised billions on a dumb business plan, yes, but that investment is tiny compared to the total amount invested in that period.
> In a world of shrinking growth , stalling productivity, and dying demographics,
Opinions should be based on facts, not over-excitement. Growth has been booming in real terms for centuries now. Many countries are in demographic decline, but overall we still have lots of net population growth for a long time. Productivity is not stalling, and is in fact skyrocketing all over the world.
https://ourworldindata.org/grapher/labor-productivity-per-ho...
> the market behaves like infinite growth is baked in.
Lots of people blindly pump their money into index funds every month. While this raises PE ratios to near-historic highs (not all-time highs mind you) it is by no means "infinite".
I find lots of great businesses with stock that sells for far more reasonable prices, given that they are off of the major indices.
Blind doomsterism doesn't help anyone.
> Do you have stats for how much of a problem this is? The problem seems to be vacancy rates that are too low, not too high.
No stats on my part, but I have some anecdotal evidence from Australia a couple of years ago. I definitely knew of several apartment complexes which were significantly empty, but advertised rents did not go down. The reasoning behind this was that banks used the previous rent for assessing value (which people used as capital for buying the next property). Because everyone essentially invested based on property price increases not rental income, it made more sense to leave the apartment empty and use the higher capital (based on a previous evaluation) to use for buying the next apartment, than to renting it out and not being able to buy the next property. L
The indicators you need to look for are politicians making it illegal to bid for a rental to obscure prices from market participants.
The percentage of capital gain vs rental income breakdown has been decreasing in Australia since interest rates started dropping 10 years ago.
Now it's going in the other direction, rents will outstrip capital gains because of higher interest - you'll have people saying that landlords are buying up houses and refusing to sell because rents are going up and they are just hoarding cash. You can't win against this argument.
Examples: today Halliburton and GE Health both posted numbers that be the market and saw big drops in value, while Spotify missed big time and swung to a loss, yet saw their stock price go up. Everybody points to potential but totally dismisses today's reality.
It doesn’t have to follow any logical law. People can buy or sell at any time, for any reason, and the market price will move along with it.
Large firms, often leveraging complex, autonomous systems, are the ones pushing around $20MM worth of stocks and moving the markets (or keeping them from moving). Jim the SE III dropping $30k in RSUs isn't doing to do anything except alter Jim's opinion on the capital gains tax.
> Many countries are in demographic decline, but overall we still have lots of net population growth for a long time.
Incredible strawman. Population has been growing in Africa and a handful of developing countries. That should have no bearing on valuations in western markets - these population growth centers are neither producers nor consumers of western capital goods/services.
> Productivity is not stalling, and is in fact skyrocketing all over the world.
In your own chart, labor productivty has been growing at a much slower pace since 2010 compared to the previous decades. This can be corroborated by other studies as well that show much more sluggish productivity growth in the last 20 years compared to the years before it.
This is a frustrating comment, filled with hand wavy platitudes about growth for centuries and booming population growth. It completely ignores the temporal component of market valuations.
0: https://vancouver.ca/home-property-development/empty-homes-t...
I’d laugh at how long it was taking him on a week-by-week basis while taking my dog on a walk. There it is, the house that will take almost half a decade to complete.
Well he finally does, and he sells the thing for close to two million dollars.
I then go look at comps during the same time period.
Because of his snail’s pace, he ended up probably making an additional 600-700k (or about 100k+ per year) because of how long it took him to build.
Jokes on me I guess!
Everything still costs the same relative to the amount of US dollars that exist. Wages just aren't keeping up with printing press.
Set the chart to a 1yr scale: https://fred.stlouisfed.org/series/WALCL
You'll see our QT was already paltry to begin with compared with the total balance sheet, now we're close to our ATH again.
Prices are the result of years of strong printing (since 2008) ballooning our cash vs asset ratio compared with what it was in the 90's or 00's. It takes time for the economy to react, but we certainly had a bull run decade since the printing started.
In 2018 they started the same slow sell off of assets, but then quickly surpassed it during the 2020 lockdown printing.
This is not sustainable over the long haul and is basically asset holders holding out for better days (e.g. waiting for the Fed to lower interest rates to recreate the frenzy). In the meantime, cash flows and operating profits are going to get hammered until those with the shallowest pockets can no longer keep up the charade, and the fire sales begin.
The question is: if companies are no longer giving dividends, no longer giving voting rights, and you get nothing if it goes to zero, then what, intrinsically, is the value of a stock tied to? Is it something other than "stock will go up so someone will buy it at a higher price"? How does it differ from, say, Bitcoin?
...what else would you expect to happen? If a company is bankrupt, it pretty much definitionally has zero value beyond whatever its assets sell for, and those will generally go to cover debtors.
That's that whole risk and reward thing. Equity is often the last in line for anything when a company is in trouble. You need to pay employees, vendors, bond holders, other loans, etc first. Pretty much everyone before a share holder sees a dime.
> what is the actual value in owning stock?
They could pay dividends one day but dividends have fallen out of fashion because the taxes on them aren't good. So many share holders don't want dividends but rather for companies to buy back shares, making their shares more valuable.
> Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool?
If you can do that reliably then you will be the richest person on Earth. There are many great companies worth investing in.
As a stockholder, you are entitled to a share of the remaining assets after debts are paid at dissolution.
Of course, the nature of bankruptcy liquidation is that there tend not to be remaining assets.
If we ignore trades between investors, then people buy stock, receive dividends, and one day the company goes out of business. (Nothing lasts forever.) The dividends have to exceed the purchase price (accounting for an acceptable rate of return) to justify the purchase.
Without dividends, stocks are a zero-sum game where someone has to lose a dollar for every dollar someone else gains.
If a stock will never earn dividends, and the company will never buy it back, then it is worthless.
This seems normal to me. (I'm in my late 30s) Dividends aside, you're saying you used to do a lot of voting and now, in 2023, you're not anymore?
If they aren't paying dividends (but are profitable), then profits are either going to the balance sheet or into capital and you literally own those things.
It's also difficult to grasp, but share buybacks have the same net effect as dividends (they primarily exist for tax efficiency).
Oracle is a great example here. They have cut their number of share in half [0] over the past decade, while paying a relatively paltry 1.6% dividend yield. So sure, you're not swimming in cash as an owner, but many investors don't want that, they'll gladly take the effective doubling of their ownership of the balance sheet that they've been given instead.
[0]https://www.macrotrends.net/stocks/charts/ORCL/oracle/shares....
>So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock?
EXACTLY.
'but I get a share of the assets if it goes bankrupt'. you mean nothing? share holders are last in line behind government, bond holders, other debt holders, preferred shares, and then maybe common stock.
people are in some sort of 'rage' mode in gambling on assets.
You’re completely correct about those financials making no sense though.
Basically. Classy gambling at this point.
They says it’s retail meme stock buyers… but what if it’s everyone who doesn’t have time to look at things and these publicly traded companies are now just selling into those reliable biweekly/monthly retirement account contributions.
They could have probably saved their business, at least in the short term, by selling more. Their shares outstanding barely increased even as the price rocketed unjustifiably higher on meme energy. I'm consistently amazed by the poor management by CFOs of companies not selling shares when their P/E or even P/S multiples are 100x+.
This is 100% free and exploitable money available to businesses, that quite clearly won't last into perpetuity. NVDA should be selling 10%+ of their share count into the market at this price. You can buyback the shares later when the price will, inevitably, and quite obviously materially fall. You could immediately put the money into a MMF yielding 5% rather than the current 1% earnings yield. There's just obvious, no brainer stuff here for many CFOs to take advantage of.
Looks like BBBY share count has declined materially over the past decade, which was quite surprising. Goes to show that buybacks mean nothing for shareholder returns until you sell. And the buyback itself is a disposal of cash on hand (or accrual of debt), so is price-neutral in the immediate term. Who wants to bet that BBBY would rather have the cash right about now?
https://www.macrotrends.net/stocks/charts/BBBY/bed-bath-beyo...
Elon Musk is one of the only people who's ever made it work, and his sales of Tesla stock are largely responsible for its current success
You can also sell in blocks to private acquirers if anybody bites. But the first approach is better if it's a meme situation (no rational buyer would take a block of shares close to market). Clearly there are many companies that could have and likely still can sell large blocks of shares close to market, NVDA being one example.
"A shelf offering allows a company to register its securities with the SEC but then delay putting them on the market for a period of up to three years. This provides some advantages, as the company can time the release of its securities, ideally aligning the issuance with favorable market conditions. Shelf offerings can also help companies save on the registration process, as they do not have to re-register each time that they release new shares."
from Investopedia
Somehow people confused this all along the way and simply equated "buybacks = good". Its about what value you get for the shares you're buying/selling. That's it. Buying back your shares at a 30x+ earnings multiple is going to be a terrible allocation of capital for most companies in the long run
This doesn't seem to be right. From Matt Levine:
>On Jan. 20, Bed Bath & Beyond Inc. had about 117.3 million shares of common stock outstanding; the stock closed that day at $3.35 per share. On March 27, it had about 428.1 million shares outstanding, at $0.7881 each. On April 10, it had 558.7 million shares outstanding, at $0.2961 each. Yesterday, April 23, when it filed for bankruptcy, it had 739,056,836 shares outstanding. 1 The stock closed at $0.2935 on Friday.
Seems like they sold as much as possible, enough to crater the stock, but not save the company.
If they had actually sold earlier when the stock was largely mispriced to the upside, they may have been able to turn it around. Good capital management is raising money when you dont need it in preparation for time that you do… not panic selling as your stock is already on the verge of bankruptcy.
My commentary was exactly that. That companies should raise when their stock is fundamentally overvalued. There are hundreds of companies out there that sure wished they had raised in 2021. Many of them are likely to follow in BBBY’s footsteps
Really poor execution by CFOs across the board. I think a combination of being overly optimistic, plus personal incentives against lowering the share price in the short term (Stock based comp, board may be short term oriented and decide to fire you, etc).
That is how markets work. Buyer must match seller. Meme stock investors are only a small % of buyers. Others are funds.
Link?
https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...
I've bought the same bed sheets for 5+ years, a few months ago I bought new ones since some bleach got spilt on one set, it comes in and I could tell immediately the quality was far worse.
One wash later, its ripping & fraying. Thankfully I could return them. Sure enough the seller is a fake typo squatted version of the original seller.
This isn't even my only example, bought a kitchen cutlery set from Amazon during the pandemic since my old one had the handles separating. I get the new set, ONE run in the dish washer and they start to RUST. Hundreds of positive reviews of course.
BBB always had high quality (and expensive) items, I had my last set of BBB cutlery for over a decade.
If a BBBY hits your mall, there's no point selling appliance / kitchen supplies there. You simply can't compete.
But I'm talking about even in October 2022, just a few months ago. No one was going to open a bedding store when BBBY was within walking distance.
I assumed such a structural failing would be under warranty, but they rejected it because of a roughly 2" stain on the mattress. Apparently, that stain was structural. I'm still salty about it.
Yes, the mattress at Costco is 5x the price. But it's probably 20x the value.
The stuff in Target, Walmart, etc., is not. (And specifically, I mean the stuff physically sold in retail stores.) That is because retail stores are held to product liability laws in a different way than Amazon is (was? depends on the outcome of several pending product liability lawsuits against Amazon).
It's pretty refreshing, though. The entire page loads in under 1/4 of a second for me.
We're really missing out
I have noticed that the closer something looks to a 1995 HTML skeleton, the more I trust it these days. I assume anything else has been run through a layer of marketers.
I wonder if they're ever gonna pick up on that?
A good mattress can make your life better in ways that few other things will, on a dollar-for-dollar basis. Sleep is important.
The hotel was also great. If you're ever in Houghton in the UP of Michigan, I would highly recommend the Vault hotel.
Nothing like spending a night or few on the mattress to test.
I say this as a huge Costco shopper and fan. Serendipity and spontaneity is the name of the game at Costco.
I just want to go to a store that has what I need, at the right level of quality, with enough clerks working at any given time. I'll pay extra for that.
What I am hoping might change things is a near-total collapse in the value of commercial & retail real estate. This is clearly already happening and doesn't show any signs of slowing - who is going to take a long term, expensive lease on retail real estate now?!
But once prices have collapsed & property owners are forced to adjust to the new reality, I'm hopeful it might lead to a bunch of new competitors able to roll the dice by focusing on smaller scale speciality stuff, which will eventually grow. Kinda like capitalism has promised forever, except maybe this time it might actually happen?!
I hope this is a restructuring and not a shutdown. It will be crummy for there to be no stores filling the gap between Target and William Sonoma.
Yes it was good to be able to see and try items before buying, but then they'd just fall apart.
With Amazon, yeah it sucks I sometimes have to return things because you couldn't try it in person. But on the other hand, I wind up buying much higher quality items on Amazon, and at a cheaper price, because the top 15 reviews together usually give really solid feedback on how the item is holding up after a year or two.
When there are 500 or 5,000 reviews on an item, you generally know what quality you're going to get. At BBB that was never the case. Especially with so many items manufactured exclusively for BBB.
If an item is 4.5 stars with over 10,000 reviews, I find it's pretty trustworthy.
It's when it has under 100 that I raise an eyebrow. Under 20, and it's most likely fake.
Besides the as seen on tv crap they added over the last few years.
EDIT: I didn't know about the store brand push.
Last things I bought there were new pillows, they turned into bags of cement within a few months.
Everything is made to be trash nowadays.
Same for knives: damascus steel, high carbon steel, etc.
If you just search for knives or sheets, or even cotton/bamboo sheets, the results are all a commoditized race to the bottom on price.
It costs more but you get more. In the 1990s, you could count on department stores for this stuff, but now you need to go up market.
BBB was great until about 5-6 years ago. The previous management made some execution errors and ended up messing up the product mix.
We had one a few blocks from my home, and though I order from Amazon like I'm trying to win some kind of game, I'd go to BBB when I needed something that day and didn't want to spend any time on research. It was almost guaranteed that the thing I'd buy would just naturally be at the top of a review site like Wirecutter and it saved me hours or days of research. Like the day my allergies were just nuts and I realized I probably needed an air purifier in the house, and an hour later instantly obtained the best in class product.
During the pandemic they got away from this model and started selling their own copy cat brands. Which some surmise as their final nail in the coffin because no one wanted that stuff. It broke the original Job I had looked for them to solve.
Wonder if there's something that will fill its place. I also thought b8ta had another interesting place there. Instant purchase of something that's on a list you often trust without need to actually research. But clearly it's tough doing retail even with a bunch of fans.
These days I mostly go to a review site like Wirecutter or a sister site, a food blog, or somewhere like Cook's Illustrated and mostly order whatever they recommend and it's fine.
You might not find what you're looking for at Costco.
But if you do find it, you can be confident it's a great value.
That's so correct. Every other retailer it feels like wants to focus on competing on price by ever lower quality. I strongly prefer paying more for higher quality of things are not junk. Low quality is a waste of resources and of my time.
And they're not good for all things. Their furniture might be reasonable quality but none of it belongs in my home, for example. Gigantic and dated-looking.
On the flip side, they remind me of all of the ills of the 2000s: McMansions, SUVs, 19 Kids and Counting, excessive wedding registries, homogenization of cities, globalization, just on an on, a fiscally liberal/socially conservative vision of 'Merika which I don't subscribe to. So I guess it makes sense that they imploded as people abandoned materialism post-pandemic?
I think most brick and mortar stores will close by end of decade. To be replaced by drone delivery and service work until 3D printed androids take over those jobs too. Commercial real estate may never be priced higher than it is right now. It will be curious to find out what's keeping rents so high, but I suspect that money is funding retirements and policing the world. When young people pull the plug, it will be interesting to watch more entrenched power structures crumble.
Please don’t take this the wrong way, but you might be living in a bit of bubble.
They're not the first. Linens n' Things was another big chain in a similar vein that went bankrupt.
Mostly I went into Bed Bath and Beyond if I wanted to actually look at and touch cooking utensils. Their selection tended to be better than places like Target. (Sur la Table is another chain for that kind of thing but there seem to be fewer of those around.)
I assume Bed Bath and Beyond's revenue skewed towards couples setting up a first home.
I think the birthrate in the US has been falling consistently for years and years. After people have one kid, they realize how expensive childcare is, and usually don't have more than one more.
If you put in the effort to teach kids to manage age appropriate chores, the workload can be kept sane.
Cost of childcare for even 1 child is huge. Unless spouse is making major money, it just isn’t worth it from a money standpoint.
Most people already cook most of their food at home, regardless of whether they have children.
Sure, if you're the one working. Even with both of us watching our kids at the same time, it's still exhausting to keep up with them. The hardest days of my week are Saturday and Sunday.
They sell a bunch of mid-tier items that don't really offer any actual quality or value over low-tier items. For items I really care about, I can spend a bit more and get an actual, high quality item.
Reality TV aside, U.S family size hit an all-time low (3.13) in 2003, and has stayed there since.
And the birth rate has failed to attain replacement since the early 70s.
Do you have a reference for this? Would love to see what the metric is based on (e.g. does it assume two parents, meaning 1.13 children).
No one was there, the prices were absolutely garbage, and the inventory was no better than anything you'd find literally anywhere else.
I looked around and thought to myself, "Wow, I bet their corporate rent costs a fortune to just be here, and they're probably burning cash hand over fist."
I'm not surprised in the slightest. Constantly amazed by businesses who seem to "still be in business," but the writing is on the wall and they're clearly zombie companies[1] or two feet in the grave.
[1]: https://www.google.com/search?q=is+bed+bath+and+beyond+a+zom...
I get the feeling that BBB, like Kohl's and Joann's, are places you just don't shop unless you have a coupon, because there's always a 30% coupon.
If I make a trip to (for example) Target, it feels nothing like Target of 20 years ago. The chances are good that they don't have what I hoped to find there. I'm getting used to being regularly disappointed and am learning to plan around waiting for an Amazon delivery.
This seems to be a vicious circle. The thing stores had which Amazon didn't was that they used to have a decent selection of things you could get "right now" and they're giving up on that niche to try and compete on price. I don't see this ending well.
I'm curious how did Target feel like 20 years ago?
Also toys are much bigger now because Toys R Us died.
What are some examples of products you've had this issue with at Target? This sounds like the exception rather than the rule based on the positive way most people talk about Target both around me and on social media.
In one of his videos I he was standing in an empty parking lot shouting into a megaphone that Bed Bath & Beyond would never go bankrupt. I think he did the same thing in front of Lehman brothers (minus the megaphone).
The exception to overall cleanliness was that a horrible smell came from the public mens restroom when I opened the door, and I found that one of the toilet stalls was thoroughly smeared (floor, stall walls, toilet itself) with feces. It didn't look fresh... bleh, so disgusting.
Anyway, after exiting the building I told my s.o. that surely BBBY is not long for bankruptcy.
Source:https://www.wsj.com/articles/bed-bath-beyond-files-for-bankr...
Defaulting doesn't mean bankruptcy however. The bondholders could legally start the bankruptcy process, but presumably the bondholders wanted to see how the stock-selling deal would pan out.
Now that the shares are under 20-cents and an additional 600+ million shares have been dumped to the market (from ~117 million in December 2022 to over 700-million today), its clear that the shareholders have been tapped out.