Hedge Fund Torched By AMC

June 16, 2021 tremendousblog Leave a comment

On glamorous Madison Avenue in midtown Manhattan, as most people were heading home for the day, the top executives of a powerful hedge fund filed into a conference room. The fate of this multibillion dollar institution could be at stake.

This is Mudrick Capital Mangement, L.P. With offices in New York City and London, it manages approximately $3.8 billion. Or did, until a struggling theater operator’s stock started to climb, seemingly out of nowhere:

Inside Mudrick, executives were growing apprehensive as the AMC rally gained steam. The firm’s risk committee met on the evening of June 1 after the stock closed at $32 and decided to exit all debt and derivative positions the following day.
It was a day too late.
AMC’s stock price blew past $40 in a matter of hours June 2, hitting an intraday high of $72.62. Call option prices soared amid a frenzy of trading that Mudrick Capital contributed to and, by the end of the week, the winning trade had turned into a bust, costing the fund hundreds of millions of dollars in losses.

Mudrick lost about 10% of its value, or around $400 million, in just a few days. These losses came not from short sales but from selling call options, or a right to purchase the stock at a specific price. The options Mudrick sold gave the buyer the right to buy AMC at $40 a share. At the time, it seemed inconceivable the stock could ever go that high.

Inconceivable except to retail traders on Reddit, among other forums. They pushed the stock to all-time highs, badly bruising Mudrick.

Mudrick sold these options to hedge the risk they took in lending AMC money. I think it would’ve been a lot smarter to buy credit default swaps, which are like insurance. If the company in question goes bankrupt, the seller of the swap has to pay you. But, buying the swaps costs money up front, whereas selling the calls produced income right away. Mudrick seems to prefer the quick buck to long-term risk management.

I find the sight of powerful hedge funds being torched by average Joes quite amusing. If other funds don’t want to join them, I’d suggest treating all meme stocks with extreme caution.

Meet New Jersey’s Biggest Polluter

June 15, 2021 tremendousblog Leave a comment

Along the New Jersey Turnpike, it comes into view: a massive complex of tanks, smokestacks, and tangled pipes. This is New Jersey’s biggest polluter: the Phillips 66 Bayway Refinery.

The Phillips refinery releases far more toxic chemicals than anywhere else in the state, and more than twice as many as the runner-up (another refinery). Some of these chemicals may cause cancer.

Where do these chemicals go? Into poor communities in surrounding Linden, NJ:

“We live in a very low-income neighborhood, so we’re advocating for food, and shelter and everything else. I don’t believe we can get to the point where we’re able to advocate for the smells or the chemicals that are released in the air,” she said.

Despite its staggering environmental toll, the plant employees just 800 people and, even at full capacity, produces only 155,000 barrels of gasoline daily. This is less than 0.05% of the gasoline the US uses every day.

Even those far from New Jersey may have cause for concern: the plant sits two miles from Arthur Kill, the waterway that separates Staten Island from the Garden State and feeds into the Atlantic Ocean. I shudder to think what could happen in a natural disaster, to say nothing of a man-made one. Indeed, the refinery had to shut down prior to Hurricane Sandy.

We have a dangerous plant in the middle of one of the most densely populated places in the country, leeching out toxins. Its damage falls disproportionately on the poor and nonwhite. Its economic impact is modest.

Perhaps it’s time for a change?

The Church Tony Soprano’s Grandfather Built

June 14, 2021 tremendousblog Leave a comment

“See that church? Your great grandfather helped build that almost 80 years ago. He was a stonemason, the old man. Came over from Avellino with four dollars in his pocket.”
Tony Soprano

The camera pans down to show a beautiful church made of grey stone. Alongside it: a red Tahoe. A father wants to show his teenage son the family’s history.

I always loved this scene in season 4: the beautiful backdrop, the connection to the Italian immigrants that form my family and Tony’s, and AJ’s apathetic response to it all. So yesterday, I went in search of this venerable parish.

The church is in Newark in the series, but the real shooting location was St. Patrick’s Church in Jersey City, NJ. Completed in 1877, it was built largely by Irish, not Italian immigrants. But how it was built closely parallels Tony’s story:

Most families could contribute only pennies. But the men of the parish, most of them day laborers and unskilled workmen, contributed something perhaps more important, their raw labor, acquiring in the process a sweat equity in the great project and a commitment to its success beyond what religious fervor alone might have produced.

We see St. Patrick’s numerous times in the series: in the pilot, when Tony visits the church with Meadow, in seasons 3 and 4, and finally in season 6 when it is home to the Feast of St. Elzear. The zeppole stand, sausage vendors, and rides were lined up on Bramhall Avenue, alongside the church.

Tony describes the neighborhood as “falling down to the ground,” and indeed I saw a number of condemned buildings. But nonetheless, I found myself wishing I could walk the Feast of St. Elzear with a bag of zeppoles in the shadow of this majestic church.

Just don’t ride the teacup ride!

The Mafia’s Hoboken Fortress

June 11, 2021 tremendousblog 1 Comment

On a narrow street at the edge of town sits a squat brick building. There are no windows. On the street, lookouts watch for unfamiliar faces. The few who do enter are carefully watched.

Inside: the headquarters of the most powerful mafia family in this country.

This is Casella’s Restaurant in Hoboken, NJ. In the 1980’s, it functioned as home to the Genovese crime family. Law enforcement attention had made the Genovese family’s usual haunts in Little Italy uncomfortable, and much of the family decamped to New Jersey to meet.

Casella’s was owned by Genovese soldier Martin “Mots” Casella, but the real power belonged to Louis “Bobby” Manna, consigliere of the Genovese family. As one of the top leaders, Manna held numerous meetings at this bunker-like restaurant. Another fixture was Hoboken bookie Peter “Petey Cap” Caporino, whose own social club was a few blocks away.

Genovese family consigliere Louis “Bobby” Manna

In 1987, Manna began to plot the murder of Gambino family boss John Gotti. He made those plans where he felt most comfortable: at Casella’s. Gotti had broken mafia rules by killing prior Gambino boss Paul Castellano. The Gambino family was also the Genovese’s biggest rival.

Before the hit could be carried out, the FBI tipped Gotti to the danger, likely saving his life. But how did the FBI know about the plan in the first place?

Shortly before Manna hatched the plot to murder Gotti, the FBI had done what they previously thought impossible: placed a bug inside Casella’s. It gave them the planning of the Gotti hit, the murder of associate Irwin Schiff, and a lot more.

Manna and other top Genovese members were sentenced to lengthy prison terms in a trial that was a who’s who of future political stars: NJ Attorney General Samuel Alito went on to become a Supreme Court Justice, federal prosecutor Michael Chertoff became Secretary of Homeland Security, and the judge happened to be future president Donald Trump’s elder sister.

After a sale, closures due to code violations, and a fire that destroyed the apartments above, Casella’s was finally demolished at the end of 2020. All that remains of this intriguing piece of history is a vacant lot.

I wish I could visit the old Casella’s and order a plate of pasta…if they’d let me in.

More interesting spots in New Jersey:

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AMC Share Sales: A Wise Move for the Company’s Future

June 10, 2021 tremendousblog Leave a comment

March 25, 2020:

COVID is sweeping the globe, causing shutdowns worldwide. One casualty: all 1,000 theaters of 100 year old AMC Entertainment Holdings, Inc. Like many businesses, its ability to remain solvent was in serious doubt.

Under these cirumstances, a lot of CEOs arrange a golden parachute for themselves and a few golf buddies in the C-suite and throw the frontline workers to the wolves. But not AMC CEO Adam Aron.

He furloughed himself and the entire headquarters staff. Never have I heard of a CEO furloughing himself to save his company money, no matter how dire the circumstances. Whatever AMC’s other problems, it was clear to me then that Aron is a true leader with the company’s best interests at heart.

I bet Aron, his executive team, and the employees manning their theaters could’ve never guessed where AMC would be a year later: solvent, reopening, and an unexpected stock market darling. Indeed, AMC stock is up more than 20-fold this year, with retail traders piling in.

Aron took advantage of that soaring share price last week, selling 20 million new shares for over $800 million. Some have critized that move as selling out existing shareholders by diluting their ownership stake, but I think this decision is a shrewd move to put the company on solid long term footing.

AMC lost over $4 billion in 2020 amid COVID shutdowns and ended the year with just $300 million in cash left. The company faced bankruptcy in a matter of months, if not less. But AMC capitalized on its increasing stock price early this year to issue more shares, and ended the first quarter of 2021 sitting on over $800 million.

With last week’s $800 million sale, AMC’s cash hoard likely exceeds $1.5 billion, taking bankruptcy off the table for the forseeable future.

And while the share sales early in the year involved significant dilution, last week’s issuances only increased the share count by about 4%. With such a high share price, AMC simply doesn’t need to sell as many shares to rake in a nice cash pile. To me, 4% dilution is a small price to pay to ensure the future of a company that looked to be on its last legs just a few months ago.

Do the fundamentals justify owning AMC at current prices? Probably not. But in a world where corporate leadership is often venal, I applaud Aron for putting the company first and ensuring its future. In the long run, its employees, customers, and shareholders will benefit from that.

Wall Street Has a New Tactic in its Fight Against AMC: Options

June 9, 2021 tremendousblog Leave a comment

Hedge funds were burned big time trying to short shares of AMC Entertainment Holdings, Inc., with losses of approximately $4 billion after the stock did this:

But like moths to the flame, they can’t seem to shake the temptation to bet against AMC and the Reddit retail hordes. Reuters reports that a new strategy is gaining popularity on Wall Street. It involves a complicated options trade called the “bear put spread”:

In the trading strategy, the investor buys one set of put contracts, which gives them the right to sell the underlying shares at a certain “strike” price by a certain time, and sells another set with a lower strike price valid for the same time frame.
The sale of the put options offsets most of the upfront cost of buying the first set of contracts. If the shares don’t fall, or fall less than anticipated, the trader’s losses from the put purchase will be covered to a large extent by the proceeds of the sold put.

This strikes me as a lot safer than short selling, but with a stock as unpredictable as AMC, I think a better move would be to avoid betting against it at all. Other overvalued stocks, of which there are no shortage these days, may be a better bet.

Not to be outdone, retail traders are piling into bullish options on AMC. These derivatives can magnify their gains beyond what simply owning the stock can provide:

Traders last week spent $11.6 billion on options contracts tied to AMC, more than on the SPDR S&P 500 ETF Trust, Invesco QQQ Trust and Tesla Inc. combined, according to Cboe Global Markets data. Options on those stocks are typically among the market’s most popular.

Bloomberg reports this demand is coming primarily from retail traders:

Trades involving 10 contracts or fewer are rising as a percentage of overall equity-call volume, according to data from the Options Clearing Corp.

This retail option buying can help drive the stock higher as option sellers need to buy shares to cover their exposure. After all, if the stock goes up substantially, they’ll have to pay out those gains to the option holders.

Because one option contract covers 100 shares, it’s easier to lose money faster in options than owning the underlying stock. Traders, both retail and institutional, would do well to be cautious.

Wendy’s: a Deliciously Different Meme Stock

June 8, 2021 tremendousblog Leave a comment

Shares of Wendy’s exploded today as Reddit’s merry band of traders piled in:

Beloved burger and Frosty chain Wendy’s (WEN) has won the honor of being the first fast-food stock to get roped into the red-hot meme stock trade.
Shares of Wendy’s spiked 16% in early afternoon trading on Tuesday after a favorable mention by traders on Reddit.

Shares closed up over 25% for the day, and packed on another 4% so far after hours:

Over 84 million shares were traded today, versus an average of 3 million. Options activity also exploded:

Investors bought 115,831 call options on the stock. This is an increase of approximately 6,360% compared to the typical daily volume of 1,793 call options.

Wendy’s slogan is “deliciously different,” and indeed it has some major differences from the usual meme stocks. The fast food chain turns out solid profits, versus substantial losses at Gamestop and AMC. It made $41 million in net income in the most recent quarter, and $117 million in 2020.

Wendy’s valuation is nearly as rich as its burgers, with a price to earnings ratio of 55 for the most recent year, compared to an average of 37 for the S&P 500. But at least the meme hordes are focusing on a company that has a real, viable, money making business.

Perhaps for this reason, Wendy’s stock is not heavily shorted, with just 4.6% of shares sold short. This removes one catalyst for further gains, but I’d still feel better holding a profitable company’s stock than that of an unprofitable company.

One way in which Wendy’s makes sense as a choice for Wallstreetbets: it’s a beloved, consumer-facing brand. We don’t see a lot of companies like oil services giant Schlumberger or document management firm Iron Mountain catching their attention. But business to business companies can be great moneymakers. This appears to be something of a blind spot for some retail traders.

In any event, I look forward to seeing where Wendy’s stock goes, and to trying their new breakfast menu!

Where Christopher Moltisanti Almost Died

June 7, 2021 tremendousblog Leave a comment

How could this happen? How could this happen?
Tony Soprano

As Christopher Moltisanti walks out of a diner beneath the Pulaski Skyway, he happens across two of his partners in crime: Matthew Bevilacqua and Sean Gismonte. What’s brought them to this same desolate spot?

Suddenly, Sean leans out the window. In his hand: a pistol. Before Chris can react, Sean has already shot him repeatedly. Despite his wounds, Chris fires back, killing Sean instantly and nearly hitting Matthew. As Matthew flees, Chris lays in a pool of his own blood, left for dead.

This scene in season 2 of The Sopranos shocked me probably almost as much as Christopher when I first saw it. Unhappy with their progress in the underworld, Matthew and Sean decide to make a power play, with disastrous results.

I went in search of this iconic spot yesterday. The scene was filmed at the New Skyway Diner in Kearny, NJ, which is now closed. However, the building looks the same except for the removed signage, and the heavily industrial surroundings haven’t changed a bit.

Chris coming out of the diner in season 2

It was quite a thrill to stand on the same stairs Chris walked down just before he was nearly killed. The warehouse that Matthew runs past in terror, firing blindly after the hit has gone awry, also hasn’t changed a bit.

After the attempt on Christopher’s life, Matthew flees to Richie Aprile’s office. Knowing Richie disliked Chris, Matthew and Sean tried to kill him to curry favor with Richie. But if Matthew is expecting a warm reception, he is sorely disappointed. Richie chases him out, leaving him with nowhere to go.

I also visited Richie’s office recently, which looks exactly the same as in the series. You can see it here.

The New Skyway Diner appears one more time in The Sopranos: when Tony and his cousin, Tony Blundetto, plan Tony B’s future after he gets out of prison. I always found the window framing the skyway at dawn an arresting image. I only wish the diner was still open so I could have a coffee there myself!

A Notorious Mob Informant’s Hoboken Headquarters

June 4, 2021 tremendousblog 1 Comment

A slight, bespectacled man with white hair sits behind a table, going over today’s bets. At his side: a beeper. You might not even notice it.

Inside the beeper is a tiny microphone. This unassuming bookie in a nondescript storefront is about to take down the most powerful organized crime family in this country.

Peter “Petey” Caporino, a Hoboken native, got into running numbers while working for a trucking company, taking bets from the drivers. He later expanded into a growing numbers racket. It got so big that he needed protection, and the Genovese crime family came to his aid. For a price.

Petey operated his business out of the Character Club and Resolute Club 404 in Hoboken, NJ. Business was good…perhaps a little too good. Caporino’s operation caught the attention of the FBI, who threatened him and his wife with prison unless he cooperated. Caporino didn’t want to see his wife go to jail and worried over who would care for his disabled daughter. So he agreed to cooperate. Caporino fed the FBI information for 18 years, severely weakening the Genovese family.

This week, I went in search of the remains of this shadowy world. My first stop was the Resolute Club 404, at 404 Madison Street. The building seems to have changed little over the years, although 404 is now a private residence. Next door is an appropriately clandestine-looking members only club:

I imagined Petey there, quietly recording everything and probably terrified that these gangsters would discover his secret and kill him. Next, I stopped at what was the Character Club at 111 Monroe St:

Like so much of Hoboken, it has become high end condominiums. All the more reason to search out this history before it disappears completely.

Here’s how it looked in Petey’s day:

Caporino’s testimony led to the conviction of 16 high level mafia members. His tapes provided evidence on bookmaking, loan sharking, and even murder.

Despite this reprieve from punishment, Caporino couldn’t seem to leave the life. Just a few years later he was arrested for bookmaking yet again. In a sign of the mafia’s dwindling power, he had been able to simply continue his business much as before, despite testifying against top mobsters.

Caporino wound up in prison after all, and after his sentence, his trail runs cold. But if you stand outside the Resolute Club, you can almost imagine him coming and going, beeper always at his side.

Have a great weekend everyone!

More interesting spots in NJ:

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This Hoboken-Based Rocket Company Could Revolutionize Space

June 3, 2021 tremendousblog Leave a comment

In the shadow of New York City, I walked down a quiet street beneath an overpass. I came across a squat brick building with no windows. On the door, a small sign was the only indication of what’s inside: Hudson Space Systems.

Founded by graduates of the Stevens Institute of Technology, Hudson Space Systems (HSS) is working to make cheap, reusable rockets available to everyone. The microgravity (weightlessness) that being high above the earth provides is critical to research in medicine, physics and materials science. Cell cultures grow faster, physics experiments are simplified, and materials are tested like nowhere else.

But this invaluable scientific platform has a problem: waiting lists for launches are long and costs are high. HSS’s 3D printed, resuable rocket aims to bring the cost down by 40% and increase capacity until booking space on a rocket launch is as easy as booking a dinner reservation on OpenTable.

SpaceX proved rockets can be reused. What SpaceX did for launching satellites, HSS hopes to do for launching science experiments.

Hoboken, New Jersey, with its density and proximity to New York City, might seem like the last place where you’d find a rocket company. But it’s one of the most educated cities in the country, with over 80% of the population holding bachelor’s degrees or higher, and has a technical university right in town. Tech companies often grow out of universities, as this one did.

Will HSS be able to realize its vision? That’s anyone’s guess, but they have already raised $100,000 in 2020 and are $162,000 into a $250,000 raise that closes in a few days. Since they are currently working on protypes and don’t yet have a product in market, this company is earlier on than the startups I invest in. But if you like getting in on the ground floor, and especially if you have expertise in this area, it could be a great opportunity.

Best of luck to these hardworking men and women on their exciting new business right here in the Garden State!

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Monthly Archives: June 2021