"But then weird things started to happen. Hertz’s stock, which is literally worthless, starts to go up. And up. And up. It gets bid up a whole 500% over a 3-day period last week. What is going on?"
This phenomenon is not unique to the recent RobinHood millennials with extra cash and extra money who are bored. There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses (the author even uses Jackass to make the point).
Here are some facts.
If a stock like HTZ plummets from $20 to 50 cents in a matter of days, the volatility is so great that when the stock spends a few days at the bottom, a few cents up can be seen as strange. Except it's not. Very few people have the intution to appreciate that percentage returns are a function of the price. If a stock gets hit by 90%, it requires 10 times its value to recover the loss. That is 1000 percent!
This has happened since the earliest days of stock trading. Here is an example with Enron:
Don't look at the price action; that on its own is not surprising. Shares in near-bankrupt companies trade like options (because they are options - on the potential of recovery), with extreme volatility one would normally see in individual options contracts. The same way as bonds in near-bankrupt companies trade like stocks, largely ignoring remaining maturity, because very likely bonds will soon become stocks (wiping out the previous equity).
Look at the facts. Nobody has done this before:
> Jared Ellias, a law professor at the University of California Hastings College of Law, said he has studied hundreds of bankruptcies and never seen a company try to fund a case with an equity offering at the start of chapter 11.
> “Hertz looks at the market and sees there is a group of irrational traders who are buying the stock, and the response to that is to seek to sell stock to these people in hopes of raising some amounts of money to fund their restructuring,” Mr. Elias said.
> “It is incredibly creative and they get props for that, but I wouldn’t buy those shares,” said Nancy Rapoport, a professor at UNLV’s William S. Boyd School of Law, who said she has never seen a bankruptcy funded this way. “I guess they’re trying to catch whatever the opposite of a falling knife is.”
On the other hand, what is fairly common is for companies to get saved out of bankruptcy by outside investment, in return for equity. This is a case of that with the oddity that it happened without contact between the company and the investors.
Interesting argument, but I think this is somewhat different.
A bankrupt company could always offer new equity to its existing creditors as part of a Chapter 11 reorganization plan, but that's not exactly a sale. If you're describing a transfer to outside investors, then the sale of new equity could violate fraudulent transfer law and the bankruptcy trustee could try to claw it back to preserve the value of the estate. (See Bankruptcy Code § 548).
It's worth mentioning that creditors can throw an insolvent company involuntarily into bankruptcy by petitioning the court. Since creditors don't share in the upside of a company (like equity holders do), there's no reason for the creditors to let the company linger in bankruptcy so that it can gamble for its resurrection. It's in their best interest for the company to enter bankruptcy as soon as possible so they can preserve its value and maximize their payouts.
There might be edge cases (e.g. if there's a single creditor who happens to have a significant equity stake, it could play out differently) but I don't think it's the norm.
Creditors may also share in the upside of the company if their bonds are currently way underwater, e.g. if your bonds are worth ten cents on the dollar you benefit from the company recovering all the way to 10x its value. Perhaps you should have forced it into bankruptcy earlier, but it's too late now. This isn't uncommon at all, as a poster upthread described "bonds in near-bankrupt companies trade like stocks".
In this case Hertz bonds trade around 40 cents on the dollar [0], so there's a significant incentive for the creditors to let the company gamble for some upside.
Yes and no. If a private equity firm injects a bunch of cash into a bankrupt company through an equity buy they do so with concessions, they might get one or two seats on the board of directors, a special clause in the bylaws in the event of a company sale or acquisition, etc. In this case these investors get none of that sort of 'armoring' of their risk.
>Don't look at the price action; that on its own is not surprising. Shares in near-bankrupt companies trade like options (because they are options - on the potential of recovery), with extreme volatility one would normally see in individual options contracts.
I get your point, but it's really not correct. Shares do not have delta, gamma, vega, strike price, implied volatility or any of the other factors that go into pricing options. They are not derivatives and there is no premium. Yes, a penny stock (which is what HTZ is at this point) has extreme volatility, but comparing them to options is way off. A share represents actual ownership in the company while an option does not until it is exercised (and is then no longer an option). By your example, any stock holding would be an option on the price of the stock going up, but it's not - you already own it.
Not entirely. Equity can be modelled as an option on a company’s assets, struck against its debt. This is fine for equity (and the equity component of fulcrum securities) in a bankruptcy.
If I rememberwell, this kind of strategy has a name called Captical structure arbitrage, where the most basic strategy is to traded convertible bonds. Most complex strategies include taking position on different asset class of the same company ( equity, bond and CDS).
> There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses
This is not unique to millennials. Go back to every retail-participated bubble and you will find this condescension (and deservedly so imo). The stories of strippers in Vegas buying multiple McMansions in 2006 come to mind.
You points about relative return measures (ROI) having large base effect issues miss the point of what's going on: it's not the magnitude of the swings which are notable, but rather the circumstances around which they're occurring.
Enron was a massively complex business, and the true value of its assets was thus a massively complex question. HTZ does not enjoy this same conundrum. Other financially impaired but high name recognition names have had similar behavior (AAL, DAL, to name a few). Robinhood have lowered the bar to trading, that children are now "playing" the markets when they get bored of Minecraft and Fortnite (this is not hyperbole). And then you have one strata above who are likely the real problem and have been active in every bubble in recent memory. Financially unsophisticated adults have indoctrinated with "buy-and-hold" from the likes of Warren Buffett without understanding the edge cases likes bankruptcies (incidentally, Buffett sold all his airlines holdings which are now a retail favorite).
Simply put: people don't understand what they're doing and that's what makes this so amazing. They think "people aren't going to stop renting cars" or "people aren't going to stop flying" and so they buy the stock, cocksure that over the long-run they will be rewarded. The future outcomes of HTZ common shares is pretty certain, and not at all consistent with current retail behaviors.
Except those buying HTZ are not quite "buy and hold" people?
I assume most of them are just doing gambling. They are fully aware that HTZ is going to be worthless in near future, but they buy the share anyway because they believe they can sell it off to someone else before the last minute.
A funny thing is that if Hartz indeed issies new shares, it makes the game a lot less favorable for those gamblers...
There are A LOT of buy-and-hold types in Hertz. They are still gamblers, but their time horizon is long and they are influenced by the low share price. I have a few smart, well educated friends who fall into this category.
The average Silicon Valley-Er makes $150k/yr. putting $1k into 2021 LEAP options could be worth $30k if the company makes it out of bankruptcy. I’ll turn off my servers for a month and YOLO them odds
> A funny thing is that if Hartz indeed issies new shares, it makes the game a lot less favorable for those gamblers...
These gamblers are irrational. They might double down, or manage to find new gamblers, or sell before this even happens. Nobody knows what will happen, and it doesn't really matter.
> They think "people aren't going to stop renting cars"
Do they? Nobody buying this stock thinks Hertz is going to recover.
They think "I'm bored and buying this worthless stock is risky and fun".
That is valuable to some people, and hence why the stock price is up.
Hertz selling more shares to try to save the company is pretty dumb, because that is not what it share holders want.
Hertz new share holders want to see the company and stock burn as much people as possible in the most spectacular way possible. That's what Hertz has become.
> Do they? Nobody buying this stock thinks Hertz is going to recover.
You should have a chat with them. People absolutely believe this. Same goes for airlines and cruise lines. I'm a former hedge fund trader, so I've had many of my friends come to me lately, and seek advice. I often ask how they're making money now and they say (for instance) things like "I walk/drive by Starbucks and I see people still buying coffee, so I bought SBUX". They're not doing any sort of real analysis, but their pseudo-analytic abilities are reinforced by the Fed. They don't really think that they were right because everything went up, they think it boils down to common-sense theses like the above.
Reading WSBs, those buying Hertz right now know they are idiots, and do it anyway, knowing that they will probably lose all their money, but hoping that if they do not, they can buy a lambo.
/r/wsb are not the ones driving this but rather the millions of new accounts at zero-cost brokers, hours and hours of boredom, and possibly stimulus checks
Don’t forget about the market makers either. Robinhood and other brokerages sell data on the positions their traders are entering to their market makers (like Citadel). Then the algos front run the trade, and you end up in a situation where a stock like HTZ can rally exponentially in a day.
The flip side is how Ford generates killer sales in China, China has the population of America in a single city, yet analysts look at a few recalls on a new model redesign and knock the shares down 50%
Common-sense fundamentals take a back seat to technical analysis and HFT algos these days
If China actually had the population of the US in a single city, they wouldn’t be selling cars. There wouldn’t be enough physical space. People would take the subway.
May be you’re not actually looking at things in a common sense way.
If a city had more than 300 million people even subways wouldn't be enough. Maybe Asimov-inspired mass treadmill walkways (imagine massive things like airports but increasing in speed as you get further from the sidewalk).
> The future outcomes of HTZ common shares is pretty certain
But say they get to the point where their balance is positive because they sold a lot of stock, wouldn’t the price of that stock go back up to the original $20 (or maybe $10, since they basically doubled the amount of shares).
you're talking on a real abstract level, but what do you companies do with the money they raise on th epublic market? I see 3 broad choices: (1) return it to other investors? That would make this essentially a ponzi scheme. (2) Fund expansion in their business? In this case that would likely accelerate the rate at which they turn money into smoke. (3) Buy time to either restructure or significantly change their business model? THis what I think the new investors are betting on (the rational ones at least) but it seems like a real, real long shot, so even the most analytical is attemping to pick the trifecta.
Stock price changes should be reported on a logarithmic scale, something like a decibel, perhaps finer, a centibel, cB. You go down 90%, that’s 10x less, -100 cB. You go up 900%, that’s 10x more, +100 cB. A 5% decrease is 1.0526x less, -2.2 cB, a 5% increase is 1.05x more, +2.1 cB.
The fact that 5% is roughly 2 cB is because you need 100/2 = 50 of 5% increases (decreases) to give you roughly a 10x increase (decrease)
Let's think in first principles here, shall we? Stocks (or equity) is a fractional stake in current and future earnings of the company. We know if a company declares bankruptcy, its liabilities have exceeded assets and equity is down to zero or negative. Debt holders have higher priority stake in the company, so the first thing that happens in ~100% bankruptcy filings is debt holders take ownership of all assets. Current equity is almost always wiped out. After restructuring, debt holders may issue new equity, which may be worth something - but is completely different from what is currently circulating right now. No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value - that's literally the definition of a bubble. One can easily make money trading a bubble asset, but should not conflate returns here with asset's ability to generate future income.
> No matter how you look at it, Hertz stock currently is worth zero. When street price of an asset is higher than its intrinsic value
The only intrinsic monetary value of a thing is what someone else will give you for it (or what people give you for owning it, like a dividend or rent or whatever.) It doesn't matter why they'll give you that for it, only that they will.
Otherwise how do you explain the value of for example a fine art painting? What do you think their ordained true intrinsic value is? Are all paintings permanently in a bubble?
What are Hertz stocks worth? About 2.83, because that's what I can sell them for.
If you owned a hundred thousand Hertz stocks right now would you just throw the certificate away because they're worthless?
There are a lot of different definitions of intrinsic value. But it often has nothing to do with how much someone will give you.
There is the asset, an estimation of what the asset is truly valued at (intrinsic), and then finally the market price. In the case of the painting, the intrinsic value might be a function of a study of trends in demands of paintings, the artist, etc. The market price may or may not correctly factor in that information to price the painting well.
The fact that insider information does exist should paint a clear picture of why someones calculation of intrinsic value might be different from the market price.
Lastly, if someone gave me Hertz stock, I'd sell it ASAP and invest the money in something else.
> Otherwise how do you explain the value of for example a fine art painting? What do you think their ordained true intrinsic value is? Are all paintings permanently in a bubble?
I think the answer is yes.
Does that say more about fine art, or about the definition of a bubble?
Matt Levine: "This is also a model for Hertz, etc.: Famously, the stock of a company is a call option on the company’s assets, with a strike price of the nominal value of the company’s debt. When the company is bankrupt, the call option is out-of-the-money, cheap and highly speculative. That is, it feels more like a call option; if you are trading for fun, and call options are fun, then you will prefer option-y stocks like Hertz."
Bankruptcy does not always mean the liabilities exceed their assets. Specifically with chapter 11 bankruptcies it is usually a liquidity issue, not that they have an overall negative value.
Uber / Lyft / Snap were never cash flow positive, and don't have any clear way of reaching that, while User is burning 2 billions a quarter and has only two more quarters to go bust.
There are tons of VC unicorns which are burning investors money on unsustainable business models, like food delivery apps that subsidize your orders. WeWork has no chance of avoiding bankrupcy.
The irrational exuberence has been here for quite some time already, and out of everything, a bankrupt company which at least used to have a working business model and existed for 100 years is not nearly the most insane investments going on here.
(The insanity is buying it before the bankruptcy restructuring, tho).
Agreed. The thing that seems especially bonkers to me is that the theory of Uber is that you could turn a low-margin business into a high-margin business by a) shifting most of your risk (opex, capex, labor costs) to low wage workers too desperate to negotiate a fair deal, and b) spending massively to get Google-ish monopoly pricing over a key activity.
Point A is looking more and more false. Uber took on a lot of costs; instead of running a very lean operation, they spent like a tech company. They're having a hard time weathering this downturn. Governments are catching up to them on their labor-isn't-labor regulatory arbitrage, and I expect that come 2021, they'll see national-scale questions about their worker exploitation.
Point B is looking even worse. Once they failed to kill Lyft, extracting monopoly rents went out the window. And now a bunch of well-funded organizations with strong brands are coming after their business with autonomous cars. It won't be easy competing with Google on software. It won't be easy competing with GM on cars. And plenty of companies have brands compatible with becoming a preferred transportation provider. E.g., imagine BMW's autonomous car service. Or even worse from Uber's perspective, Costco. That's something like a quarter of American households.
It's perfectly plausible to me that Uber will never hit breakeven in terms of total profit exceeding total investment. By 2040, they could be in the same bucket as Groupon: an early darling that still exists but people barely remember.
Everything being equal,isn't what Amazon did before anyone else? Burning astonishing amount of cash and create a massive monopoly.
Prof Galloway, gave very interesting thoughts:
I don't think so. Per Crunchbase, Amazon only took $108 million in investment. Uber took $8 billion. Although I have plenty of issues with Amazon's behavior, I think they earned their market dominance the hard way.
Fair point. Although I think Amazon is doing that based not on speculation about the possibility of gaining market dominance, but because they already have it. The fact that it's bonds and not venture funding is a sign.
Amazon remains very price competitive. For Uber to make a profit they need to raise prices to cover all their operational expenses. Traditional taxi companies can remain viable at lower prices due to their lower operational spending.
Everything being equal,isn't what Amazon did before anyone else? Burning astonishing amount of cash and create a massive monopoly.
Prof Galloway, gave very interesting thoughts on similar approach followed by WeWork
This is silly. Snap's free cash flow is constantly growing and was close to zero the past quarter. Uber & Lyft are generally profitable on rides and with a bit more scale will be GAAP profitable.
Side topic: the rental car industry is a dinosaur walking. Just like Netflix and video-on-demand put Blockbuster out of business, Uber and rideshare companies are slowly putting the kabosh on rental car business.
I can't remember the last time I really needed to rent a car. Maybe for the random site-seeing roadtrip. But vacationers aren't rental company's bread and butter: it's business travelers. And business travelers are seeing much more convenience from rideshare than from rentals. The hassle of renting a car, parking, tolls, gas, dealing with insurance and liability, and just the shenanigans of rental car companies is not worth the hassle.
It took a solid decade before the impact of video on demand was felt on Blockbuster, but it was inevitable.
Just how COVID is bringing the water out of shore on the low tide, all it is doing is exposing already weak companies. Those that fail can't simply blame COVID, altho it's certainly a contributor. For some, the writing was already on the wall.
In 10 years we'll be writing the post-mortem on the rental car industry.
Prior to COVID, I was solid consumer of business rentals.
Rideshare is good for getting to the airport and back, but if I'm spending a few days at the destination (which in my case is usually suburban), a rental car can be both cheaper and more convenient than rideshare in smaller, underserved markets and in the suburbs. Also if you're making multiple stops of indefinite length, catching rideshare each time can be frustrating. Rideshares also have a limited radius while rentals don't. If you need to drive 2-3 hours from the airport to your destination, it's easy on a rental but not really advisable on a rideshare (possible but rideshare drivers hate it).
I wonder if the problem with car rentals maybe isn't the business model, but how modern the operations are.
I'm with National so I get to pick my own car. National has really nice cars so sometimes I end up with nice rides like Audi A3s for the price of a midsize (~$30/day -- I have free executive membership through my credit card). It's really not that much of a hassle with the app -- get off plane, walk to lot, pick a nice car, drive off. Driver's license, credit card + insurance etc. are all electronic. No dealing with any CSR. Only human interaction is at the exit where they check your DL (or QR code on your phone), scan your car's barcode and then open the barrier arm. My avg time to check-out is ~10 minutes, and returns are ~5 mins (excluding gas fill-up). This is with National.
The Hertz experience is much more plodding. Their systems are a little more archaic. You have to check in at the counter if you don't have Hertz Gold, and you can't pick your own car. They're more expensive than other rental companies but their vehicles definitely are not nicer. Hertz has the largest market share but the worst customer experience of the majors.
Good insights, and definitely reflects the reality of the year 2020. But let's bring ourselves back to the year 2000 when Internet was slow, Netflix didn't exist, and the business model for video rental was strong. Back then it was hard to see the writing on the wall.
Bring ourselves back to 2020. We have some new factors that we have visibility into that are changing the dynamic for the rental car industry:
* Work is becoming increasingly remote. People are becoming more comfortable not traveling for business meetings or conferences.
* The gig economy is heating up. Even if the rideshare business is still in its relative nascence, there is no doubt that the rideshare will continue to be a trend.
* It's quite possible that the ride share firms will move to a subscription-based model (closer to Netflix) rather than a consumption-bsaed model (closer to Blockbuster) in the future. Paying per-ride has its hassles. A monthly fixed subscription model with predictable consumption limits can change the picture.
Your $30/day rental probably didn't end up being $30/day. With all the extra fees (which usually doubles the daily rate or more), gas, parking, and tolls, you're probably spending closer to $60-$70/day. This is a daily rate. Would you pay $100-$200 on a monthly rate for unlimited trips within a radius? Possibly, if there was sufficient ride share supply.
The problem of course is on the supply side. How do you pay drivers a share of a monthly subscription model when supply-side pricing is on a consumption-basis while demand-side pricing is on a subscription-basis? This is the challenge for the industry. But I think that challenge will be solved.
No doubt the external factors post-COVID will alter the travel landscape and I've no good feeling on where that's going to take us.
So there's one big factor that plays into all of this: for business travel, the company's paying. Employees don't really bear the cost, so the incentive is to choose the more convenient option. Parking etc. can all be expensed (not a big deal with Spothero, etc.). And companies usually have negotiated rates with rental car companies. So there's inertia.
I just checked my National invoice for my last LAX rental: the nominal daily rate for was $31/day, but with airport concession fees, tax, etc. it came out to $37/day (the car was a 2019 Dodge Challenger). I don't remember how much I paid for gas but gas is pretty cheap these days so it couldn't have been more than $40 (200 miles driven). So yes daily rate is higher, but not really double.
Would I pay $100-$200 for unlimited trips on rideshare? Not for business travel, no because like I said, for the non-urban geographies I work in, a rental car is just more convenient and the company's paying (plus my time costs money).
For personal trips? Well, Lyft does have a subscription program for commuters but I'm probably not the target demographic (I have my own car for groceries, but otherwise I walk everywhere or take the L). I also have a free Lyft Pink subscription through my credit card but that hasn't really increased my Lyft use.
I suspect during COVID the attractiveness of rideshare will actually decline -- I'm personally wary of getting into a confined space with someone else even with every precaution taken. But post-COVID, it's likely things will return to normal. Rideshare has been and will likely continue to be an important component of my urban transport mix. I just don't see it being dominant over all others.
Agree with you. I don't think the demise of rental companies is immediate or imminent, but I believe it is inevitable. The forces are indelible.
BTW, your calculation agrees with my statement. $37 for car including fees, $30-$40 in gas, plus unknown parking. I was spitballing $60-$70 for day, and it seems those things do indeed add up to that amount. Higher gas prices, more expensive parking, and longer commutes make those figures even moreso.
I agree with you that if the business foots the tab, the employee might not care and would just go for convenience. But the biggest factor impacting business travel is not the cost of rental cars, but the shift to virtual events and remote meetings. This is another indelible force for the rental industry.
As mentioned, I think the demise is not in these next few years, but by 2030 I believe we'll be writing the post-mortem on rental cars and how the industry has transitioned to something else.
Uber's made some difference for me at the margins. I've never tended to get a rental car if I'm just going from the airport into a city and back. But I did tend to e.g. if I were going to some location around Silicon Valley even if the car were mostly just going to sit in a cheap/free hotel parking lot. It was generally easier and it meant I had a car if I wanted to run out to a store or whatever.
Uber pricing and convenience make me think harder about the equation. If I'm really pretty much just going to a hotel for a few days, it's probably a wash so I may just take the Uber.
I'll still rent if I'm going to also be visiting friends or going for a hike--or taking a longer drive to somewhere that I may not even have cell reception. But definitely less than I used to even pre-COVID. And I imagine that urbanites who default to not driving rent even less.
Are you booking your cars at a rate negotiated by your employer? Aside from getting a free rental credit every X days, I don't see anything about discounts in the Emerald Club benefits section.
Playing around with variations on a 7/13-7/17 M-F rental (also trying 7/11-7/18 Sat-Sat, checking in Manhattan, at LGA, and at DSM in Des Moine, IA for comparison) I'm seeing numbers 1.5-3x higher. I'm curious if the difference is entirely price discrimination or if there is something else like a negotiated bulk rate at play.
Numbers are for lowest tier car, same pickup and drop off location.
Manhattan M-F: $72/day base ($348 w/ taxes and fees)
Manhattan Sat-Sat: $59/day base ($501 all in)
LaGuardia Airport (luxury car, economy car is $22/day more) M-F: $94/day base ($512)
LGA Sat-Sat: $73/day base ($693 total)
Des Moines International Airport
(standard car, economy car is $6/day more) M-F: $92/day base, $472 total
Des Moines International Airport Sat-Sat: $49/day base ($463 all-in)
----
So...
1. Lowest I'm seeing is $49/day, which is why I ask in the first place.
2. Pricing shenanigans of a Saturday to Saturday rental coming out cheaper than a Monday to Friday rental in the case of a) 7 day Manhattan vs 5 day LGA and b) 7 day DSM vs 5 day DSM are so frustrating. Surely there's room in the economy for a competitor who offers transparent, predictable pricing? Dealing with industries where you know they are milking you based on reverse IP look up/browsing history/demographic profile is infuriating. How can someone be loyal to any company whose pricing model is "the absolute most we think we can get out of you, personally"?
> Are you booking your cars at a rate negotiated by your employer?
Yes. But I believe I get the same prices on my personal account.
> I don't see anything about discounts in the Emerald Club benefits section.
This may be why. I'm Emerald Executive -- my employer has negotiated Executive tier for every employee. I also have the same tier on my personal account through my credit card.
I don't rent cars in NYC (that's one place where rentals are inadvisable -- NYC is hostile to driving). But just priced out DSM for you 7/11 - 7/17. For Economy and Compact = $152/week base, $219 total with fess included. Midsize = $157/week base, $226 total with fees included.
(Someone else with Executive membership but without a company negotiated rate, please verify.)
With Executive level membership, I can get a midsize and pick any vehicle from the Executive aisle. This can be anything from an SUV to a lower-end luxury car. This is why National is amazing.
> How can someone be loyal to any company whose pricing model is "the absolute most we think we can get out of you, personally"?
It's differential pricing as a result of yield management [1]. You can hate on it but it's part of the reason the economics even works for certain classes of goods and services. Without it, large swaths of services in the hospitality industry (hotels, airlines, etc.) would not be accessible to the masses or be profitable.
> For Economy and Compact = > $152/week base, $219 total with fess included. Midsize = $157/week base, $226 total with fees included.
Thanks for taking the time to look this up. $226 vs $472 is wild. 2.1x the price for the same service.
Playing around with other car companies at DSM for 7/11-7/18:
- Budget: $347 all-in
- Avis $410 all-in
- Hertz $484 all-in
- Enterprise $374 all-in
I was expecting all of these prices to be pretty similar given "economy class rental car" feels like it would be fairly commoditized.
> It's differential pricing as a result of yield management [1]. You can hate on it but it's part of the reason the economics even works for certain classes of goods and services.
Being familiar with the concept doesn't make it more enjoyable to be the one being fleeced!
I thought that the car-share model is pretty well established in Europe? I think it has basically died in the US though:
- Zipcar got bought out by Avis (big traditional car rental company), and many properties terminated their contracts with Zipcar
- BMW's car share program left both the SF and Seattle markets
- In SF, the problems preventing carshare were mostly regulatory -- they couldn't get permission to use on-street parking (made both public transit and car-ownership factions unhappy)
- Lyft started a pilot of traditional full-day car rentals(!)
Traditional rental mostly continued to be the better choice for weekend rentals or maybe even long day rentals, unless car share had a pickup location advantage.
But Uber took a slice out of short-term private transportation for trips that weren't too long or too complex. I know a couple who live car-less in SF and they still use Zipcar and whatever the competitor is. But it's a pretty narrow use case.
> It's quite possible that the ride share firms will move to a subscription-based model (closer to Netflix) rather than a consumption-bsaed model (closer to Blockbuster) in the future. Paying per-ride has its hassles. A monthly fixed subscription model with predictable consumption limits can change the picture.
Yea, I'm not buying it. People generally won't switch to a subscription unless they think it's going to save them money. And these companies are struggling for profitability as it is.
Me neither. What pay-per-ride hassle? The rental companies I use have my credit card on file.
Actually, from a business use perspective, pay-per-ride is probably a lot simpler. I expense the rental. A company is probably not going to typically let you expense a subscription fee unless it were some subscription for the whole company which seems as if it would be challenging for a variety of reasons.
As someone uses both rentals and ubers when traveling. Rentals are still really a necessity. Uber/Lyft/etc drivers can and still are super picky of their rides and will reject your pickup for awhile just because they can grab longer routes by multi-apping.
I do have Hertz Gold, but I've never paid for it. I think I originally got it due to a credit card promotion, but they renew it every year, for free.
My experience of renting has always been just like you describe for National. Walk to the lot, find my name on the screen, go the indicated row, pick any car from that row, get in, drive out.
I've been Hertz-loyal all this years precisely because the experience is so zero-effort.
"My experience of renting has always been just like you describe for National."
This is my experience with Hertz Gold as well and I suspect it is about the same with all rental car companies: if you are a member of their club, you can breeze right through and drive off the lot in about five minutes.
Except abroad ... I can only speak about European cities, but the Hertz locations have no idea what I am talking about when I talk about my name on the screen or just grabbing the car and driving out - they think I am a crazy person and they work for Hertz. Renting in Europe is the same (terrible) experience as walking up to a rental desk in the US as a non-member.
lol, I've never had such a good experience renting a car. I suppose because I've never really rented from an airport. They somehow almost always take at least 30-45 minutes. And don't get me started about enterprise.
How are you vacationing without a rental car on a tropical island, like Hawaii? Uber/Lyft might be workable on Oahu, but on any other Hawaii islands rental car is a necessity unless you just stay in your resort all day long.
Or any of the national parks that's far enough you can't drive your own car all the way from your home? After you finished your activities for the days and are ready to go back to your hotel, you might not even have phone signal to call Uber/Lyft in the national park.
I guess you and me just have very different definitions to "vacation".
This is true in places like Denver as well. It can get tough to get rental cars in the winter or in summer (spring and fall are better) because of vacationers going a number of hours from the airport. Uber/Lyft don’t really help with those trips. Generally I do Uber/Lyft in Denver because it’s more convenient if a bit more expensive.
Many American cities also decentralized their business cores, and developed suburban office parks far flung from airports, the city, any infrastructure, or each other, but very convenient for the managers who live along the fairway at the nearby country club. For those cities, it's impossible to get a rideshare from the suburbs. Unless you are in a college town, drivers do not patrol there and you will be waiting for a car to come from downtown or the airport to pick you up and take you to your hotel. The rental rate might even work out ahead given how expensive rideshare gets over time and distance.
They have their place in vacation spots with poor pedestrian infrastructure, and middle ground cities with poor uber/lyft service. Rental cars might be done in boston and nyc, but still viable in Cleveland where getting a lyft from a suburban office campus could mean 30 minutes of waiting for the driver who grabbed your request all the way from downtown to show up.
Solid point. So many vacations require a rental car. Thinking of my last few vacations, ski trip to Colorado, Glacier National Park in Montana, Marco Island in Florida. None of those would be practical with ride sharing and even if they were it would be far less comfortable.
You know what else is viable in remote, beautiful locations? Blockbuster. Doesn't mean you should bet on it sticking around as a major publicly-traded company.
It will not disappear. If you don't own a car, renting is interesting. In my city we have a few car sharing solutions. My favorite one is non-profit and provide electric jaguars, vans, and family cars. Another one is owned by the state and provides eletric Renault everywhere in the city.
They are very great solution in my opinion and it doesn't have the issues of classic car rentals. It takes seconds to rent one through an app and you don't need to see any human.
Sounds like you're agreeing with me. Redbox is an example of a video rental re-think company that's still doing ok even though Blockbuster failed. Did video rental go away completely? No. But the legacy industry collapsed spectacularly still.
The current industry is a dinosaur. The industry is going through a shakeup. Maybe it's car sharing, maybe it's a new rental model. Regardless, the existing Blockbuster-like, Sears-like, K-Mart like companies have a lot to be worried about.
Or with self-driving cars the rental industry will become the next uber since they won't need a driver. Everyone would just lease a "car privilege" from a rental company which (or others) would be picking you up whenever you need it following your patterns a fleet of cars will be shared among more people. This would reduce pollution, waste and traffic in large cities.
I don't disagree with that model, but I don't think that is "the next Uber". That is just Uber in a few years. It is common knowledge that self-driving cars are Uber's long game. They are trying their hardest to get there so they can eliminate their biggest cost; paying drivers.
And are doing it out of their own pocket. Uber isn't paying them to clean unless someone pukes in the car, and they certainly don't get anything to cover wear and tear and maintenance. However, drivers need to maintain a clean vehicle or else they get a poor rating and are forced out of the system, and need to maintain a working vehicle or else they cannot work that day. When you start to factor that in, your rate as a driver sinks like a stone.
If someone bought the car exclusively for Uber, the math would've been simple. But people run their own personal errands, drive for Lyft, deliver for Doordash or Instacart, etc.
There's been an [older] thesis that in a nutshell, unless one happens to chase the surge, driving for Uber/Lyft/Grab is a money-losing proposition.
I disagree, but for personal reasons which I don't know how widespread they apply:
1) I travel frequently, for instance to the SV area which provides a good example. I opt to rent a car 95% of the time for my (US) trips, and the reason is that I prefer to move freely. When you're on the whim of an Uber (and in the States you usually can't walk anywhere), it's psychologically unpleasant having to rely on someone to constantly pick you up from somewhere. So much more liberating to have a car parked and move when you please.
2) When you end up moving, you can joyride, which I often do.
Maybe someone needs to do to rental cars what Uber did to Taxis.
If I could order one on my phone, have it be ready or turn up, and avoid all of that complexity over insurances and tolls then I would probably sell my own car and use that.
I’m sure the rental companies have some digital stuff, but I generally associate rental cars with queuing at an Avis counter for an hour after a long flight, lots of paperwork and getting hit with fees etc. For exactly this reason I tend to stick with Uber on business trips over rental cars.
> I’m sure the rental companies have some digital stuff, but I generally associate rental cars with queuing at an Avis counter for an hour after a long flight, lots of paperwork and getting hit with fees etc. For exactly this reason I tend to stick with Uber on business trips over rental cars.
I just rented cars two times in the past two weeks. I was able to shop online between a few different rental car agencies (there’s only 3 big ones that own all the major brands, although I like to stick with Enterprise/Alamo/National). I made a reservation after a few minutes of shopping, I walked up to the counter, gave my ID and credit card, had the car in next 5 minutes and drove away in a total of 10 min max with the clean car that I wanted.
I’ve done this many times too. I don’t see why I would trust a random stranger more than a business who should have established best practices and proper insurance.
I also prefer proper hotels to stay in than random Airbnb. I don’t even have to talk to anyone at many Hilton branded hotels, and they have an online chat option in their app with the front desk.
My worry with both the car rental market as well as hotels is the constant upselling or offers/loyalty programs/etc.
The good part about Uber or Airbnb is that there isn’t any of that. You find what you want, pay the price they ask for and that’s it. I agree that there are other major problems with them but at least the user experience for buying the service is on point.
When it comes to hotels I either have to book direct and fill in my details every time (I don’t have a preference for any brand, so having an account with one particular brand doesn’t solve the problem either) or use sites like Booking/Expedia and suffer the constant upselling or dark patterns.
I don’t need your “loyalty” or “offers” or anything. I need you to tell me what’s available, take my money and get out of my way. I’d gladly pay money if such a service existed (that doesn’t belong to any particular hotel chain so that all the hotels are on there).
Uh? All airbnb does is try to push you to their 'experiences'. And God forbid you ever gave Uber your email address, they'll try to get you on Uber Eats for many rounds of the 'unsubscribe me from yet another list I never realised I never signed up for' dance.
Regarding Airbnb it's been years since I last used it so maybe they changed in which case it's too bad.
As far as Uber is concerned I've used it up to last year and I don't recall ever getting an unwanted marketing e-mail from them (disabled all marketing comms in the app early on when I signed up and they respected that just fine).
That's a good point. At my last stay at the Marriott near SFO I had a hard time figuring out what I could eat in the lobby for breakfast! There was a breakfast area for Ultra-platnum-gold club (or whatever they called it!) And a restaurant, but I wasn't sure how much that would cost me. Same thing with the WiFi, members only.
It has a big enough majority that for all intents and purposes you can rely on it. They have other problems which is why I've stopped using it but at least in the locations I've been to, driver shortage was never the problem.
> You can make an account book direct at a hotel chain
This means I'd either need to find and sign up for all the potential hotels I'd be in the vicinity of in advance, or spend time signing up (and making sure to opt out of any marketing/loyalty/etc) a couple days before I arrive (I travel on very short notice).
That's the problem I'm trying to avoid. I want a single app/service/etc that will give me a big hotel selection (from several brands, and independent ones) with easy booking at a fair price (can be higher than the mainstream websites, I'm willing to pay more for convenience and to make sure the hotel isn't being ripped off) and no upselling.
All the times I needed a hotel it wasn't a planned thing - it was "I'm here in this coffee shop thousands of miles away from home and I need a bed to crash on". An app that can just find me the nearest place and a no-BS user experience would've been lovely even if it means paying a premium for the convenience.
Car2Go was pretty great. Hundreds of cars around town. Unlock any of them with the app, drive around, do what you need to do, then leave the car parked on the street wherever you end up and lock with the app, so someone else could drive it.
Unfortunately they merged with BMW's DriveNow and became "ShareNow" ... and pulled out of North America completely :(
There are apps like this already, such as Turo, which I've used. Cheaper and a larger selection as it's other people's cars rather than the company's own fleet.
I love the idea of a rental car just turning up. There is a lot of hassle when renting a car, all the waiting in a queue at the service desk, all the questions, paperwork etc. If someone focused on making it convenient I'd love that. Uber style driver turns up and you swap seats. Everything done in advance online that needs to be done. No upselling in person - you've decided what insurance, paid for it, provided ID in advance. Next time you don't need to repeat the process. They don't bother checking for scratches (who scratches their rental car but outside of an actual crash?). It could be so so nice. It might make me choose a rental car where I would have previous thought "meh not worth it, just do an organised tour" or something.
I've been thinking about this for a year or so. There's a lot of pain points that could be solved:
* Insurance not included in prices displayed in search
* Underage surcharges not included in prices displayed in search
* Receiving a different model compared to what was booked
* Paperwork(sometimes digital Onan iPad) should all be done via an app
* Phone should unlock car
Some of the traditional rental companies have tried to solve some of these issues and there have been a few startups in the space. I'm not aware though of anyone trying to build a ground up tech first competitor to Hertz or Avis Budget. It is an expensive industry. SoftBank money would be needed to achieve scale.
These things you see as pain points are all profit centers. If you got rid of them the “list” price would go up and customers seem to prefer hidden fees to price transparency.
Yeah. You pay a premium but the experience is very seamless and professional. Not something I could see scaling easily, at least how Silvercar operates, but really successful in its niche.
The one use case that's missing in Uber &c are long-distance (conditionally: one-direction) road trips. My family preferred driving to flying if the destination was only a couple of states away (Chicago, music camps, college, ...) and we didn't want to put miles on our car.
With Hertz & friends, easy to rent a van, take it some where and either leave it there (and fly home) or drive back. It'd probably be a wash when milage depreciation is thrown in?
And driving with a cello is a lot better than flying... :-)
Let's take a drive I did recently: Minneapolis to Boise. Twenty-ish hour drive; if you have a couple of drivers, you could maybe get it done in one day. Let's budget two days for car rental. Pick up, drive, stay over night, drive, drop off. Hertz is quoting me between $100 - $150/day depending on car size. Let's say 2 days @ $150 = $300. According to a random internet article [0], the cost of driving (minus gas -- which we're spending either way, though maybe in different quantities) is $0.16/mile (yes, includes maintenance -- forgot to mention earlier). Boise is 1450 miles away from Minneapolis @ $0.17/mile = $232. Yeah, a little more expensive; Hertz needs to break even after all. But not by as much as one might think. And for three passengers, much less than a short-notice flight.
My daily driver is fully paid for gaz guzzling. A long road trip on this old car will almost always necessitate an expensive garage visit for a tuneup. Or you can roll the dice and hopefully not breakdown somewhere.
If you've ever been stuck in foreign garage waiting for your car to be repaired you'll appreciate the convenience of having a national network of replacement cars at the ready.
I don't know about that. I live in Alpharetta that is an hour commute from Heartsfield Jackson International airport in Atlanta. In the last year, I had three business trips to the Bay Area - where I flew and took Lyft and Caltrain/Bart. However,I had two business trips that were a 5 hour drive away and in both cases I rented a car with Enterprise in Alpharetta and had them pick me up and drove the entire trip. I had a business trip to Denver and after evaluating ride share vs renting Hertz I took the rental and drove and parked at the hotel near the conference center. It was cheaper to rent than deal with the vagaries of ride share with a long drive from Denver International Airport to the University of Denver and if I would be picked up at 4 AM for my red eye back home the next day.
As someone over 25, renting a car is dead easy and seems to be cheaper than multiple ride shares. When I had business trips in smaller southeast cities, renting a car and actually driving the entire trip was more convenient than air travel because I got to listen to podcasts the whole way instead of dealing with the airport and still needing local transport when I got there.
I think you live in cities and look at everything from those lenses. Car rental is still thriving for business travels. Hertz actually served business customers more than Budget etc. When you go to places like Bay Area, Hawaii, Pudget Sound etc car rental is many time unavoidable. I don’t think Hertz went bankrupt because of ride share as OP suggests. There was another article which states how activist investors took over and loaded it up with debt transferring their assets.
No way. Insurance and hassle are always cheaper than paying labor. My employer can bid down rental cars to $40/day or less, which is less than almost any meaningful Uber round trip. Even for a individual like me, I can get Nissan Altima or whatever for $70-80 in most places.
You also have improved safety and security for employees vs John Doe and his 2010 Odyessy Uber that is falling apart. Uber is a shitshow experience compared to what it used to be.
I think it's because you know where the car is going to do when you are in the driver's seat, so you can mentally brace yourself and adjust your internal balance systems accordingly. Whereas, as a passenger, you have to react to the car instead of controlling it and so your internal balance systems are always slightly behind the actual motion, causing motion sickness. This is probably extendable to planes, trains, and busses.
Not any specific game, but some have character motion that isn't strictly coupled to player motion (e.g. performed by a controller like conventional first-person games), and I found that very unpleasant at first. Gradually I got used to this disconnected motion; the only thing that still made me queasy was disconnected rotation, but that is rare (moving platforms in Doom 3 are the only example I remember).
I used to suffer motion sickness as a passenger in cars, sometimes buses, and ships, but at least the first two went away along with the ‘VR sickness’. (I haven't been on a ship since.)
If you're ditching your car and trying to be more environmentally friendly then car rentals makes sense - have for us in the past at least. Car rental is cheaper for 2 or more people than taking the train; so rental is really useful for longer journeys (and you don't have to do taxi/bus transfers from the train station).
Business demand for rental vehicles doesn't seem to be falling?
You may be right, but only if Uber, Lyft and whatever competitors arise in the coming years actually turn a profit. There is a vast differences between an industry changing due to new business models vs. VC capital footing the bill for the change without solid, profitable transactions at its core.
The ride-sharing model is on the cusp of proving a sustainable business, but they aren't there yet.
Last time I rented a car it was because the hotel and airport were on opposite sides of a big city. Renting a car for 3 days was cheaper than two 40-mile Uber/Lyft trips.
Because airports are often located on the edge of a city, this is a pretty common situation. Convenience matters, but so does cost, so I expect rental car companies will continue to get this sort of business.
The problem with rentals is the rental companies are ing lowlife thieves. The last three times I've rented a car on holiday (Europe) I've been absolutely shafted and by three different companies (EuropCar, Hertz, and a local company).
While ridesharing is killing the traditional rental car and taxi industry, it remains to be seen whether or not that's sustainable. All the big players are deeply unprofitable. Right now all this "disruption" we're seeing comes from companies burning vast amounts of money with no feasible path to profitability.
Whether or not ridesharing can survive without being subsidized by losing its investors billions of dollars remains to be seen.
I got a motorcycle which works perfectly when I Uber would be too expensive and Transports too slow.
Therefore I rent a car when I go on a holiday not too far away, it costs me less than $200 for 4 days and doesn't happen that often anyway so it's way less than investing in getting a decent car and maintaining it.
I read WSB daily for the laughs, but that place is very dangerous for traders as the group think over there is usually very intense and also very wrong. It will warp your view of the market, so you have to approach it as a place for memes and humor only. If I have a trade idea, I usually like to make sure that it's something that most of WSB would disagree with, and those trades almost always work out.
BTW, I had no idea Shkreli was a member. That's really hilarious, and really fitting. I wonder how much of his money he made on options (if any at all).
It was the actual Shkreli, back in the days when he was still streaming. Also, he wasn't a very 'early' moderator of WSB, it had been around and popular for a while by the time he showed up.
You might think the smart thing to do is to short the stock, but then the five feet man that tried to cross the four feet river on average yada yada margin call problem.
However, there is exactly one entity that can sell short HTZ without ever being margin called. And it is, amazingly, the same entity that can (and almost certainly will) delete the shares. Yes, the company itself, a debtor-in-possession that since the Ch11 filing has officially zero duty to the shareholders and is supposed to maximize the value to the creditors.
The Big Short for the March'20 trading mania.
While we're here, can we get TSLA to $4000 just like Cathie Wood has predicted? And maybe a second IPO attempt of WeWork? I want a few more cherries on the top and then the re-pricing of risk and the beginning of the recovery.
> might think the smart thing to do is to short the stock
Shorting bankrupt companies’ stock is unusually risky. Short sellers have to deliver the stock to close the trade. Bankrupt companies have a habit of ceasing to trade when their equity gets wiped out. This has left short sellers stranded with no way to close out the position, a costly situation to exit.
In the short term the stock market is a voting machine, being vulnerable to fashions and fads. In the long term it's a weighing machine that evaluates the actual earnings of the company. That was true in 1934 when Graham&Dodd penned it down in "Security Analysis" and it's still true today. Just look at what happened when WeWork tried to go public. It's just that "short" term in the stock market can be a decade or longer.
Yeah ultimately you always have the option of treating a stock as what it actually is (a stream of dividends), and the more random prices get, the more people will do that (because more dividend streams will be priced below NPV)
A meme floating around wsb is that the 1k handout is driving this behaviour, and at first I thought that was kind of ridiculous but actually, it makes some sense:
On one side you have people who are bored and have nothing to lose, the handout was free money, nothing to spend the money on and no entertainment.
On the other side you have people who are desperate for a ticket out of their current situation.
Catalysing this is the low barrier of activation provided by Robinhood and the likes...
Agreed that it's been a number of factors coinciding.
(Granting the usual caveat that a lot of the content there is satire...), there sure are a lot of posts there also making reference to dreading offices opening back up, because they won't be able to be at home playing the markets with a beer in hand.
While I think people are putting in significantly more than just their trump money, I have to think that giving paid workers the direction to "stay at home, don't do anything, PS. No sports" could have a significant effect on the price of these meme stocks when applied across most of a nation the size of the US.
It smacks of the altcoin hype, where momentum was the only indicator.
160k new stockholders is still a drop in the bucket. The daily average for HTZ is 60M stocks traded.
The real action happened on the days leading to that June 6 peak, when it hit $5, and it has already retreated. This is a straight pump-n-dump operation and I’m surprised there has been no crackdown on these in reddit...
He is almost 100% positive the funds and larger firms are pumping this market to get newer retail investors to buy in and right now we are at the top or close to the top of one of the largest bear markets we have seen in a long time.
He expects maybe 2-3 weeks of small but choppy rise in the market to hit around Feb highs. Then you will see big time collapse that will make what we saw in Feb seem tiny. Then we will enter a bear market for a good 12-16 months.
I see a lot of traders blaming the "retail investor" for the general rise in stock prices, but retail investors are not even 3% of the market. The HFT and over-leveraged hedge funds are doing something for sure. And they'll blame Robinhood.
So basically we have the equivalent of "millenials have ruined the housing market" in terns of reporting quality here.
Find something negative that happened, and blame it on a weired group of people without checking if the theory is even plausible.
Right up there with "4chan elected trump" and "immigrants have ruined the economy"
The stock market is the rule of the minority who is looking (sending trade orders for a specific stock, driving price up or down). And for Hertz, the pros may be looking the other way these days because that serves their purpose, letting retail investors drive the price.
Wsb is one community that is a useful heartbeat for overall sentiment but it wouldn't be the first time retail punters wanted to get in on "free money"... like bitcoin
>... But you know what kind of public companies have zero earnings for years at a time, and where future earnings are so far away that it’s already understood by everyone to be a day-to-day game of chicken, just like this? Biotech companies. And you know what kind of companies are going to be really interesting in the aftermath of Covid? Biotech companies.
Sounds sorta like Amazon. It's one giant game of expanding P/E multiple. The bulls say tell me what I'm missing is that Amazon could turn on earnings like flipping a switch. They just don't want to. It's more efficient if AMZN holds on to the money. My response is that it's always been that way with this company. Same story in 1999.
Also sounds sorta like Microsoft. Sounds definitely like Tesla. Sounds, in fact, like way too many companies.
There's a bubble here of biblical proportions. The Fed has suspended the inevitable in the name of economic survival. But the signs were everywhere pre-COVID. Now, no severe decline in stocks will be tolerated. It's Powell Puts as far as the eye can see. The returns will be jaw-dropping. The valuations will be lunar.
Still, it would be a terrible thing to be riding in this particular shopping cart when it smacks into the wall.
Reading this made me laugh so hard the tears started to flow. Post Modernism / Post Reality life imitating art. Funniest thing I have read this week.
I just hope that "real" people don't get hurt from this (obviously plenty of people have lost or are about to lose their jobs at Hertz which truly sucks), cashed up get rich quick day trading fools on reddit losing money is one thing, some scammed unsuspecting retiree losing their shirt is another.
All in all it is Jackass humour meets reddit meets online trading. The world is a strange place.
Have you guys come across Dave Portnoy @stoolpresidente on Twitter. This guy embodies everything that is wrong with the retail/millennial/wsb crowd.
But remember that the markets are a beautiful thing. There are millions of inputs into the pricing function. If the price is wrong, then arbitrageurs will come in and bring it in line with where it "should be". There is nothing wrong with that.
Dave portnoy is not a millennial, FYI. He’s like 45.
But he owns barstool sports and literally exists to drive pageviews. There are no sports so he turned to sticks, just like it’s described in the article. Unlike wsb he’s worth tens of millions so losing $1MM is less significant than it would be for most.
He started Barstool sports, a company now worth ~$0.5B. He's personally worth tens of millions as a result of this. He does a little more than eat pizza on the internet these days (though still does that too).
Day trading does not appeal to me at all because it feels exactly like gambling, but I can see the appeal and I hear more of my friends talking about it. I can see the alure, but I do believe in the end the "Boglehead" strategy is the best long term low stress investment strategy (low expense mutual funds in tax advantaged accounts).
This type of situation with Hertz definitely feels like a unique combination of events (corona, gig economy, etc) but I won't be surprised if we have more and more weird stock situations occur as weird internet culture leaks into the real world...
> Hertz was in trouble anyway; it’s carrying around a ton of debt to pay for a fleet of cars that no one wants to drive, because we have Uber now.
Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving.
I still however rent a car on vacation. I like the freedom to just be like “I wonder where that road ends up” and end up exploring 50 miles out of town.
>Do people go on vacation and just Uber everywhere? The times I take an Uber are largely times I’d have taken a taxi, which is to say times I should not be driving.
More or less yea (assuming wherever we're traveling has uber)
Depends. If you're going somewhere for just a weekend and you don't go around outside cities all the time, it's probably cheaper to just use Uber for the 3-6 times you need it, rather than having to rent a car. If it's a very different country it's probably easier to go with taxis/uber rather than driving in an unfamiliar environment with regulations and driving culture you don't know 100% as well.
Parking is really expensive in a lot of cities. Easily $40/night+ if you're leaving a car at your hotel, plus you have to pay to park while sightseeing/etc.
The author has missed a few important points to paint a picture that ultimately misses reality.
First, Hertz isn't worthless because it has restructured. Even if hertz is ultimately wound up because its debts exceed its assets (something very very unlikely historically) its shares today are worth something because there is still the chance thelat may not happen (including the chance the company will be saved by a bailout)
Second, the traders he refers to are speculators. Speculators fulfill a role that is a well understood and widely agreed to be important for both liquidity and price discovery.
Third, if other people are bidding price up (or down), who cares? You're not a share holder in a "worthless" company, so let them run their casino in that little corner of the market and you can invest in the other 99.99%.
Ge should also Google what a "dead cat bounce" is to better understand crashed stocks' behavior...
No, weirdly enough that’s actually very unusual. They’ll get no dividends for a while and they will be diluted, but they almost always end up with some value. I can’t say I understand it totally, I’m just speaking historically...
Plus that’s assuming it even gets that’s far. Hertz may get a fat cheque from the federal government or the companies it’s been buying cars from or some other source. Maybe a competitor will offer something for some locations and stock?
This is the thing about stocks that take a tumble. If it’s trading at 5% what it was last month, and it’s actually worth 6%, you can buy at 5 and sell at 6 and make a 20% profit.
Well first, what makes you so sure they don’t have more assets than liabilities? The filed for chapter 11 (restructuring) not chapter 7 (liquidation).
And second, even if their liabilities exceed their (physical) assets, creditors are very reluctant to actually liquidate larger businesses. I don’t know exactly why but just looking historically, creditors tend to be much more willing to take a haircut and keep at least parts of the business operational than to demand their full pound of flesh...
One of the key why stocks of bankrupt companies like Hertz go up 500% in matter of days is so called “river of money”. Globally, there is massive amount of cash sloshing around through people’s retirement accounts which ends up at places like Robinhood, Blackrock etc. When you sign up for 401K, you are putting money in this river where these gamblers take a dip. The bottom line is that no one is playing with their own money and so gambling, short term profit jacking etc are full on. The principles of value investing, looking at future long term returns is all down the drain. Even the many big tech boards are almost exclusively run by investor suits looking to squeeze out money in short term and walk away. If the situation continues, I think stock market isn’t going to be viable channel for public investment in long run.
My understanding is that retail trading volume is several orders of magnitude too low to be responsible for swings in most stocks (such as airline stocks), and certainly not the market as a whole. Random low volume penny or bankrupt stocks are a whole different story and retail speculation certainly drives the price.
You’d be surprised how little volume it takes to make prices move intraday. Market makers are not rigidly stupid and sell you as much as you want at a fixed price. If you continue to buy aggressively, they will raise the prices while you are buying.
Also retail isn’t really well defined in terms of dollar amounts. there are some extremely wealthy people classified as retail. And they don’t need to be as ultra conservative with their trading as institutional traders because they are trading their own money.
In small stocks, when using leverage, they can influence things. I can’t find it now (on mobile) but I saw an analysis of HTZ that showed almost all of its rally was due to retail.
Call buying forces the options market maker to delta hedge by purchasing the underlying.
Example: As of market close on Friday, a June 19, 2020 expiration HTZ $3 strike call option cost .55 ($55) and has a delta of .56; if I were to buy a 10 lot for $550, the options market maker would be short 560 deltas and would purchase 560 shares of HTZ to hedge their short call position. This can push the share price up quite a bit if there’s non-stop call buying.
The converse is also true for put options, buying puts from an options market maker forces them to sell the underlying to delta hedge.
I worked at firm that let you trade on leverage a while back. They ended up owning so much of a small stock they couldn’t unwind the position after the leveraged client sold. I think they had to slowly unwind it and take on the risk.
BTW I've been trying to buy a car from Hertz.com, and it's been pretty much impossible. Whenever I call they tell me weird things like "we lost the key for this car" or "we'll call you back". They never call back. They don't answer to my emails either. This is weird.
Can't see why they shouldn't be allowed to raise funds by selling stock. People are free to buy or not to buy, at their discretion. Govt/courts shouldn't be picking winners and they shouldn't be picking losers either.
There are plenty of stocks you can by over-the-counter "freely".
Stock exchanges are regulated marketplaces. Regulated marketplaces have existed since the dawn of the civilization because they are valuable for buyers and sellers. City marketplace in a had different rules than trading outside it.
Companies go there and voluntarily submit to strict rules and regulations to get access to more investors. Investors wan to invest in regulated markets because regulators work for them.
> Investors wan to invest in regulated markets because regulators work for them.
no, that's not true. Regulators ensure transparency and correctness of information. It works to everybody's advantage, not just investors.
Investors are free to choose bad investments, provided that the investments are made with full and transparent information. Regulators aren't supposed to be there to "protect" investors from making bad choices (what is a bad choice? Who gets to decide that?).
I don't see you complaining about, for example, brokerages, dealers and exchanges providing liquidity by fulfilling your orders even though the market won't at a given point in time. This can prevent a security from falling or rising in value where it otherwise would have, and directly works against an investor who was hoping for a rise/fall in price.
Regulators don't work "for investors", they work for lobbyists, they want to keep the markets running, and for any given policy, someone will win and someone will lose.
I don't see how the Hertz decision is any different, except I do see how taking the opposite position can hurt the markets, either by creating a chilling effect on low-mktcap companies listing or by creating uncertainty in the legal environment, which investors really don't like.
Just look at the number of Israeli companies who won't list in their home turf, TASE, or companies who have and pulled out. A lot of it has to do with TASE imposing unreasonable requirements. Otherwise raising money domestically would be a no-brainer.
I’m an investor on the other side who is just minding my own business buying market indices and then all of the sudden, less-than-ethical actors show up and bid up the price. Now I am being effectively taxed by buying portions of a soon-to-be-worthless company. Who/what are we going to optimize this situation for?
In this case the NYSE jumped on delisting hertz stock to prevent this kind of stuff from happening. But courts and government have to step in constantly, and a tooooon of law created, because we live in an incredibly complex system and it’s almost never clear cut how to optimize for greatest freedom/happiness.
If you're buying indices then you have explicitly given up control of a portion of your portfolio to them, and they can lose money as well as gain. Sounds to me like you're just complaining because you lost money because of this move, but symmetrically speaking, you could have gained.
And to be clear, I'm not long or short Hertz and have never been (unless some index or fund I'm holding happened to buy their stock).
Hertz lawyer, for one. And I will lose some nominal amount, or maybe I made money, depends on when the index rebalances. But NYSE racing to delist in the face of this move and Hertz own lawyers comments are enough that no, in objective reality, there’s many reasons why this isn’t just some simple issue.
In this case, I think they should be able to sell stock as well. But I think there is a point where selling a security you know to be worthless amounts to fraud.
Can I suggest that it should be legal to create a Pnozi scheme, as long as you are up front and absolutely clear that that is what you are doing.
It seems to me that situations like the current one with Hertz are really just Ponzi schemes played out with stocks.
If we could do this legally, I bet you there would be a lot of these, and the ones playing would know what they are in for. (And there would be less incentive to do it illegally).
If Dave Portnoy and Warren Buffet both started a pyramid, who could grow the larger one before bust? Would you buy?
Ultimately the end of any pyramid scheme is a large number of people losing money , often money they can't afford to lose.
It doesn't seem likely to be in the interests of most governments to actively encourage straight Ponzi schemes as when the people at the bottom of the pyramid lose their money, they may end up requiring state assistance, transferring the risk to taxpayers.
sounds a lot like regular old gambling. most will lose, but a few will win through luck or skill. if it's clear up front that the expected value is negative, I don't really see a reason to ban it. most forms of entertainment involve losing money.
The people who "win" at Pyramid schemes aren't (IMO OFC) winning through luck, they're winning by being the people that set them up.
And in the US and many other countries gambling is regulated, so that the games have certain parameters and the risks are known, can't see that being applied to pyramid schemes.
a disclosed ponzi scheme is called "musical chairs", and if you remember playing it as a kid it's not that much fun and almost always ends with someone crying.
Good point. Reminders me of negative yielding bonds. Institutions buy them knowing they will lose money unless there is a greater fool willing to buy them at a premium.
This is not really surprising to me. When you have a prolonged zero interest rate policy, and “there is no alternative” then the only thing left to do if you want to make money on your money is gamble. To me the Robin Hood traders are not creating this phenomenon, rather they are just making it plainly visible as it goes mainstream.
I've seen this happen to a number of bankrupt companies, this just happens to be a big one. The expectation is that the stock go to zero, but somehow it bounces upwards. Happened with GM back in 2008-2009, happens to a lot of other stocks that are in bankruptcy. The stock becomes unmoored from the actual company and trades like a weird collectible.
And here we are, today making fun of all those supposed jackasses exchanging cash for - such obviously worthless! - things such as Hertz stock, and tomorrow going back to our jobs that pay us in - so obviously valuable! - fiat money, some of which we may "invest in" such obviously valuable things as Bitcoin... Go figure!
Nice story, although something about the clean distinction of the third type of bubble seems imperfect to me.
The difference being that in the other two types of bubble there are still many people (not a majority) who are trading on the predicted behaviour of other traders (rather than a prediction about the future being the same or better).
The retail investors are fully aware of what the author describes and are pushing their conclusion forward: Nothing matters. Being trapped in binaries we strangle. This is a cultural disavowel landing on an economic register. Dragging white supremacy into the public realm is another such motion.
Cost of borrow for hertz shares reached over 140 percent last week. Some of the purchasing could well have been driven by hedge funds which were short but had to buy stock to exit their positions after available shares to borrow dried up and their brokers forced them out of the position.
The vast majority of equity investors -- including quite a few professional portfolio managers -- have only a faintly vague understanding of how bankruptcy works. Many couldn’t tell you the difference between a Chapter 7 and a Chapter 11 filing in the US Bankruptcy Code without first looking it up on Google.
But details such as "who gets what in a bankruptcy" are irrelevant to people who are trying to "beat the gun," as J. M. Keynes described it nine decades ago:
> It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it 'for keeps', but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.
> Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is 'to beat the gun', as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.
> This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional;—it can be played by professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.
> Or, to change the metaphor slightly, professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.
The fundamentals of Hertz are terrible, but the market as a whole doesn't trade on fundamentals anymore, so this is unexpected as a matter of degree.
Still, I suspect that despite the rhetoric surrounding this dead cat bounce, the nonzero Hertz stock price is more a result of marketstructure. I saw similar delayed declines years ago (when I followed the market more closely) in several contexts that I attributed to the interplay between the equity and options markets. In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity.
TL;DR: Someone in this system besides Hertz probably is acting normally and rationally, and the Hertz price action merely is delayed by the market structure, specifically, options activity.
> In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity.
AFAIK this is because of gamma increasing as an option nears expiration, option dealers need to buy and sell more of the underlying as the changes in delta get larger due to the increased gamma. If there is a near-the-money option with large open interest, the underlying may pin to this strike price due to dealer hedging around this strike price.
Once the option series expires, underlying hedges can be unwound on the following Monday.
‘Option pinning’ as a search term will provide more info
I wonder how much stupidity they should prevent...
"My business venture is to look for fallen coins on the ground. Would you like to invest in it?".
Even that is too far from this scenario, how about "My business venture is, I ate at expensive restaurants on credit card and now I need money to pay those bills. Would you like to invest in it?"
Doesn’t the public market and IPO process exist explicitly to weed out obviously bad faith “businesses” like the ones you describe, or at least force them to be transparent enough about what they’re doing that no one gets hoodwinked?
There are marketplaces where you can buy and sell shares in stuff like the second scenario you describe — that’s essentially a debt consolidation loan, and you can fund one in whole or part at lendingclub.com — but the SEC only allows “qualified investors” to participate. You have to demonstrate that you can easily survive losing your full investment, and there’s no similar requirement for buying publicly traded stocks.
Do Robinhood and WSB even show up at all in the charts? Institutional investors own 99% of stocks, you cannot really move a high volume stock with these individual traders.
Question: Have there been bankruptcies where shareholders aren't wiped out, other than government meddling? How much do shareholders who aren't wiped out typically get?
Yes, sort of. If the company is wound down, the shareholders are unlikely to get anything. However, companies are usually worth more as a going concern, so administrators will try to restructure the debt to allow the company to come out of bankruptcy. In that case, shareholders still own their shares though they are likely to be highly diluted; debt holders may only be willing to restructure in exchange for equity, for example.
Agree with the above. There are also cases in which secured or unsecured creditors will vote for a Chapter 11 reorganization plan to give something to equity holders--even in violation of typical absolute priority--if it helps get the plan approved quickly. Equity holders might also keep their shares if there's "new value" added to the reorganized company (the controlling case is Bank of America v. 203 North LaSalle Street Partnership). There are a handful of other instances, but none are especially common.
During American Airlines 2011 bankruptcy and subsequent merger with US Airways. Creditors ended up getting paid in full and people who bought the stock for a few pennies made 40x on their investment.
I imagine that if you had enough to pay back one shareholder in a bankruptcy, then you would not go bankrupt. The only way shareholders get anything is if all other creditors get paid in full first. If you can do that then you are not bankrupt.
From the Hertz bankruptcy motion (via Money Stuff/Matt Levine): "246,775,008 shares of common stock" or another way "Hertz could potentially offer up to and including an aggregate of $1.0 billion of common stock"
I don’t agree with the underlying assumption, which is that the stock market was a sober, rational affair until these yahoos showed up. It has always been a casino. Nobody knows, nobody ever has known, why stocks move how they do, or when they will move.
According to NNT (Black Swan etc.), investing in stocks is in some ways even less predictable than a casino. Your possible maximum win in a casino is precisely limited (if the house did its math), while with a market a black swan can get you up in an unbounded way.
However, the market as a whole tends to be stable, so that one can invest in say index funds for modest but reliable long-term growth. I might be off, but as far as I can tell the question now is whether even that stability is becoming past tense now.
This phenomenon is not unique to the recent RobinHood millennials with extra cash and extra money who are bored. There is a tone of condescension against an entire generation of millennials painting them uniquely as jack-asses (the author even uses Jackass to make the point).
Here are some facts.
If a stock like HTZ plummets from $20 to 50 cents in a matter of days, the volatility is so great that when the stock spends a few days at the bottom, a few cents up can be seen as strange. Except it's not. Very few people have the intution to appreciate that percentage returns are a function of the price. If a stock gets hit by 90%, it requires 10 times its value to recover the loss. That is 1000 percent!
This has happened since the earliest days of stock trading. Here is an example with Enron:
https://famous-trials.com/images/ftrials/Enron/documents/enr...
Notice the daily returns from the 3rd of December 2001. So, really, what has been going on forever?