Malt Liquidity 40
Stonks go up, and the numbers and rules don't matter
WeSPAC
Much like every rapper started using “Lil” after Wayne, and much like everyone started attaching a lowercase-i prefix to every noun after the iPod was released, We elevated its consciousness by attaching “We” to work, grow, live, and don’tfollowGAAP. Of course, after the catastrophic failure to punt the little office company that couldn’t into the markets, it is now in line to go public via SPAC (and, as the headline aptly puts it, is “attempting to woo investors by telling them they lost $3.2 billion last year”):
Documents shown to prospective investors described losses that narrowed from $3.5bn in 2019, as WeWork slashed capital expenditure from $2.2bn in 2019 to just $49m.
The documents, which have been reviewed by the Financial Times, also show that occupancy rates across its global portfolio fell to 47 per cent at the end of 2020, down from 72 per cent at the start of the year, before the pandemic hit.
If your losses narrow by less than 10% from year to year, it is at least a sign that you are taking some sort of fiscal reality into account when running your business. But these cost savings came in a year where the entire world’s office space was shut down. Each time I think this entire saga is wrung dry of amusement, it keeps giving. Who could forget community-adjusted EBITDA or summer camp? Even yours truly planned on going around on Halloween ‘19 with a “Made by We” t-shirt door to door “looking” for more funding until the content bubble hit and WeAllGotTired of WeJokes.
Alas:
WeWork is in discussions with BowX Acquisition Corp, a “blank cheque” company which raised $420m in August, according to people familiar with the matter and to the documents. BowX counts former basketball star Shaquille O’Neal as an adviser and is run by Vivek Ranadivé...
420 million in funding secured from the SHAQ SPAC - yeah, reality is still post-satire.
Bad Faith
A little while ago, I wrote about the fiduciary rule as it related to Robinhood and the Massachusetts complaint against it, where I stated that
…if your clients are happy with your offerings, and your offerings literally cannot guarantee profit, what exactly is the duty they are flouting here? There is nothing fraudulent about your product ‘offerings’ - it is just what is available on open markets.
However, these are the clients of a broker, not an investment adviser. Of course, the whole point of being an investment adviser is that you can give advice or manage other people’s money and not be held legally liable for being wrong. This is also why, all over the internet, this is not financial advice is plastered across Twitter bios and Substack banners. I have also talked about how, by and large,
Generally, illegal promotion of a stock comes down to not disclosing a position in a stock, not disclosing that you were paid to promote the stock, or knowingly propagating false information.
Which, of course, brings us to the ARK Tesla model that gave us this price target
that doesn’t even pass the blind-eyeball test, let alone the smell test.
To start, ARK forecasts that Tesla’s almost non-existent insurance business could generate revenues of $6bn by 2025, with 40 per cent operating margins, more than three times the margins of auto insurance heavy weight Progressive.
I don’t plan on breaking down the model as TSLA is a stock that is far beyond being tethered to modeling and financial valuation reality. (If you do want analysis of this model, the thread below will provide laborious detail on the fantastical assumptions and the poor methodology present in the model.)
I have no personal ill will towards anything ARK related other than being moderately annoyed at how much their Robinhood-esque ETFs are written about by journalists who, I guess, just report, not even speculate, on ETFs for fun. It’s a thematic ETF! There’s nothing inherently wrong with propagating a product with highly correlated holdings. In fact, I use it as a portfolio hedge against QQQ stocks all the time:
What I do have a problem with is the fact that ARK manages money through ETFs, which, by definition, are traded on public markets. It’s not limited to accredited investors or fiduciaries acting upon the behalf of an accredited investor (i.e. mutual/pension fund allocations), as anyone who happens to read one article amidst the swathes of articles about Cathie Wood and TSLA can buy in. You can’t run a public ETF without being held up to the fiduciary standard, as you must be a registered investment adviser to manage them - as such, you must act in your clients’ best interests. It is one thing to speculate in a pie-in-the-sky fashion, and it is another to be blatantly delusional with your projections. Yet, as my oft-repeated adage goes in finance, “If you’re right once, people will hang on your words for the next 10 years.”. But the level of confirmation bias regarding ARK is astounding. Precisely zero of their predictions about anything Tesla related are remotely close to true, yet somehow the stock price movement is attributed retroactively to their foresight? I would trust DFV solely based on his analysis with an 8-ball and an UNO deck and “I like the stock” over an ARK model, let alone the fact that he at least does analysis based in reality.
At what point is “outright lying” considered securities fraud? I don’t even have a problem with a report that is qualitative rather than quantitative being put out. As ridiculous as "Bitcoin may replace bonds" is, sure, there’s endless plausible deniability. But when you are attaching “math” and methodology to ridiculous projections to the point where a precocious sixth-grader who dreams of being a fund manager could probably poke some holes in it, some serious scrutiny really should be applied. Let’s also ignore the fact that Tesla lied to regulators about its "full self driving” beta (that isn’t actually full self driving) and how street-dangerous the footage looks even though ARK’s “bull case” is heavily based on robo-taxis being present already.
I have no position in Tesla - I don’t plan on buying into a stock so completely untethered from reality, I don’t plan to ever take a short position on it for any reason outside of microstructure imbalances, and it’s obvious that Elon plays by a different set of rules. I don’t even mind this! CEOs are allowed to be overly rosy with projections - that’s what financial disclosures and compliance act as a counterbalance to. But a registered investment adviser should be held accountable for putting out literal snake oil, and the media should be held accountable for pumping up the inflows to these ETFs (and GME - it is not a coincidence that the graph of WSB subscribers corresponds to the correlation across the globe re: GME reporting) through the consistent deluge of articles dating back almost 2 years now.
All I gotta say is, as my man Yung Quant says, “Where’s the mothafuckin SEC?”
On that note…
Fantasy Congress - murder your capital, don’t murder the Capitol
Wirecard encroached on bitcoin's fundamental value by facilitating illicit drug transactions
GME earnings, get hyped: