Friday, October 25, 2019

Who Is This Guy and What Have They Done with Jamie Dimon?

 The WeWork debacle is in the red-meat stage.  Now that the emperor—Adam Neumann—has been shown to have been wearing no clothes for quite some time, the press is on it.  The Wall Street Journal’s latest bit of piling on goes after SoftBank and its formerly could-do-no wrong $100 billion “Vision Fund”:

SoftBank Fund Dials Down Risk; Staff Struggles With Chaotic Culture.
 But let’s be honest.  Did anyone doubt it was chaotic at that joint?  The worst prospective client a money manager ever gets a call from is the lathered-up guy who says, “I want to put some money to work.”  That is code for, “I missed the bull market and I want you to make money for me now, and here it is, I want results.”  Softbank had $100 billion to “put to work.”  It was never going to be done rationally. 
  But our job here is not to join the scrum.
  Our job is to perhaps put the pack animals on a different scent—the scent of a CEO we here at NotMakingThisUp have always had enormous respect for: Jamie Dimon, CEO of JP Morgan, whom Mr. Neumann, the aforementioned clothes-less emperor evidently counts as among his “allies,” if the Wall Street Journal’s reporting is to be believed.
  Worse, JP Morgan, it seems, not only invested in WeWork (in the C-round, at a not-insanely-ridiculous valuation), but lent money to the visionary-cum-clothes-less emperor Mr. Neumann against his own WeWork shares at a quite-insane-enough-thank-you-very-much valuation.

  Naturally, Jamie was quite anxious to see the money returned, and his bankers were working on a rescue package until SoftBank agreed to throw more good money after bad and took control of an office-rental company pretending to be a magical mystery dream factory.
  Jamie Dimon, for you home-gamers, was one of only a literal handful of financial CEOs who kept his head screwed on straight in the years leading up to the 2008 financial crisis, and was savvy enough to see opportunities when they presented themselves during those perilous times.  After the AIG bailout, for example, when all the world was freaking out and nobody seemed to think the Feds would recover their investment in AIG, Jamie Dimon said, and your editor remembers him saying it quite crisply to the skeptical analysts on one of his company’s earnings calls that dark autumn, “That’s a good deal.  I’d do that deal.”
  Alas, such clarity of thought appears to have been clouded over by a decade-long bull market and the prospect of ginormous fees from an imaginary unicorn.  No, this is not rear-view-mirror thinking on your editor’s part.  The real world—including more than a few of Jamie Dimon’s quite legitimate commercial real estate customers—has been full of skepticism towards the WeWork model, and they’ve said as much.
  Why, my Sentieo workstation [think: much less costly than Bloomberg, but more useful] came up with a couple dozen skeptical—sometimes quite pointedly so—observations about WeWork on quarterly earnings calls as far back as November 2017.  This one, from Empire State Realty Trust back in September 2018, sums it up:
“I think, from our perspective, we don’t have WeWork as a tenant in our portfolio. Our view, as Tony has articulated, is we don’t like the proposition of providing a long-term lease to someone who’s, in turn, entering into short-term agreements. And then…very often, not creditworthy entities, not that the enterprise business is different.  But we don’t see it as a good credit.

  Thus, WeWork violates Banking 101: instead of borrowing short-term and lending long-term, it borrows long-term, sells short-term.  A banker with the brains of Jamie Dimon would have seen this with his eyes closed.

  So, what have they done with Jamie Dimon and who is that guy masquerading in his place? 

Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2015)    Available now at

© 2019 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice.  It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

Saturday, August 24, 2019

When CEOs Resign

  Our inbox was humming this week when news broke that Patrick Byrne, the founder, CEO and guiding light of (OSTK, $20.58 for you home-gamers), had resigned from his post as CEO and from the Overstock board of directors, following the disclosure that he had been involved in FBI probes concerning “political espionage conducted against Hillary Clinton and Donald Trump” since 2015.
  We cut our blogging teeth with Patrick Byrne stories, as many longtime readers know, starting with the one we're reproducing below, from early 2005, a good decade before Byrne and the FBI became an item.
  Our interest in Byrne and began innocently enough when a good friend and the best short-seller we have ever known suggested looking at as a short.  Since this advice came from a guy who could--and still can--smell a scam before he even meets the scammers, we began to take a look.
  Around the same time, however, another friend, one of the best retail and apparel investors we ever knew, suggested going long  He had visited the company and thought Patrick Byrne was the best CEO I've ever met, quote/unquote.
  So we stayed on the sidelines, short-selling-wise and going-long-wise, but started listening to the Overstock earnings calls, and we're glad we did, blogging-wise.
  It was like dropping down Alice's rabbit-hole and finding a Strange New World of conspiracy theorists, the likes of which we had never heard on the earnings calls of a publicly-traded company--their main conspiracy theory being that short-sellers were brazenly selling shares of stock without first borrowing them, as required by every regulator known to Wall Street (so-called naked shorting).
  Since we'd never worked with, or known of, a short-seller who did that, and since we had worked with several professional short-sellers and knew most of the rest, it was a conspiracy theory we found hard to fathom.
  So we wrote a blog about it.
  In hindsight, your editor kind of wishes he had let the conspiracy theorists stew in their own juices, without trying to help them understand the way the world of professional short-selling actually worked.
  But--and this is a big But--it turned out the conspiracy theorists were right about one thing: shares of Overstock really were being sold without having been borrowed.  It's just that the prime-brokers were the bad actors, not the short-sellers.
  All that wouldn't come out until the financial crisis, however, well after the damage was done.  In the meantime, Patrick Byrne's obsessions became the gift that kept on giving, blogging-wise, and not merely from his commentary during the public earnings calls: your editor has long suspected Dr. Byrne himself contributed to the comments here in these financial columns, under an assumed name.
  But now the curtain has come down on his role at, and, in truth, we harbor no ill-will towards Patrick Byrne or the company he built.  For one thing--let's give credit where it's due--Patrick kept going long after many, many, many dot-coms fell by the wayside, or worse. 
  For another, your editor actually visited the company, long after the dust had settled on the naked short-selling conspiracy battle, at its then-new peace-symbol-shaped building at the suggestion of the short-seller who long ago had suggested looking at as a short...only this time, he was, correctly, long the stock.
  We went there to size up the company's then-nascent efforts in bitcoin, and found the building full of very smart, very hard-working people who all seemed to share an honest respect for Patrick Byrne.  And, full disclosure-wise, your editor did go long, and profitably, until, as unfortunately tended to happen over the years, the rabbit hole kept leading nowhere, results-wise. 
  Patrick wasn't there the day we visited, but we did peak into his office.  There aren't many CEOs with a Bob Marley poster above their desk.
  It made your editor wish he'd visited Patrick back in the day, face-to-face, instead of trading comments on these blogging pages sub rosa.  We could have instead swapped stories about the Bob and the Wailers concert at the Music Hall in Boston, in the summer of 1978, a few months before we started in this business of getting and spending as a junior analyst at a once-great but long-since-gone company called Merrill Lynch, Pierce Fenner & Smith.
  It was a great show, Patrick.


When CEOs Obsess is a high-flying company whose CEO, Patrick Byrne, has a problem with success. His problem, specifically, is that the success of his company has attracted short-sellers of's stock.

While I do short stocks occasionally as part of my investment strategy, I am not one of the short-sellers Mr. Byrne--actually, Doctor Byrne--goes after on his earnings calls and in his erudite shareholder letters. The shorts he goes after are so-called "naked" shorts, meaning they have not actually borrowed the shares of Overstock which they have sold short.

Not only is naked selling short illegal, it is, from my vantage point: a) stupid; and b) not the way any professional short sellers I know go about their business.

So I think Doctor Byrne is identifying a problem that doesn't exist. And if it does exist in the case of, then those so-called naked shorts, whoever they are, will eventually have to buy back the shares of Overstock they have shorted--a good thing for the Doctor and other shareholders of Overstock, should they ever need an exit strategy. He should be thanking the idiots doing the illegal deed--not obsessing about them.

Why write about Overstock without having a dog in this fight? Simple: I have found in my 25 years' investment experience a very high correlation between companies whose CEOs obsess about short-sellers and the eventual self-destruction of those companies.

CEOs who obsess about a non-operating issue such as short-sellers usually have a very fragile business model--otherwise, they would not waste a second of their time on such useless speculation. Or they simply have something to hide--sometimes fraud, sometimes not. In general, what comes to mind when CEOs obsess about shorts are the words of Queen Gertrude--from Shakespeare, with whose work I'm sure Doc Byrne is very familiar: "The lady doth protest too much, methinks."

And Patrick Bryne protests way too much.

Bill Gates, as one example of a CEO whose stock has, in the past, been heavily shorted, never bothered to get worked up about any short-seller on any Microsoft conference call, ever: he just ran the business and let the stock take care of itself, and take care of the shorts along the way. In fact, when I am short a stock, I get very nervous if the CEO does not obsess about the shorts. It usually means he's playing a very strong hand.

But don't try to tell this to Patrick Byrne, because today he's whining to Floyd Norris in the New York Times that "someone is manipulating our stock," and blaming the shorts for the recent 15-point drop following an earnings call that disappointed investors expecting positive surprises. (Bryne does not, by the same token, thank the shorts for facilitating the 60-point rise in the prior twelve months, nor does he grasp the fact that he and he alone is to blame for raising ridiculous expectations and then failing to meet those expectations during the company's earnings call.)

Speaking of that call, you should listen to it. The whole replay. Especially the last twenty minutes, when Doctor Byrne fields a call from a man identifying himself as Bob O'Brien. "The name is not familiar," O'Brien says to Byrne, "let me start out by introducing myself."

The "not familiar" Bob O'Brien then delivers a paranoid and wholly ignorant fantasy regarding the supposed short-selling conspiracy driving Overstock and other small cap companies into the ground, including factual errors regarding the mechanics of stock delivery and ramblings of an individual with far too much time on his hands and who probably has a difficulty distinguishing reality from The X-files.

You will hear Doctor Byrne patiently let the man ramble, expressing surpise and interest in the caller's fantasy, and you will hear Doctor Byrne act wholly ignorant of where this Mr. O'Brien came from. "I don't know any of the stuff you are talking about but it is interesting stuff," Bryne says.

Patently false.

Turns out Patrick Byrne helped an organization called "National Coalition Against Naked Short Selling" pay for two Washington Post ads attacking naked short sale tactics. Turns out this so-called coalition is run by none other than the paranoid X-Filian Bob O'Brien.

But don't take my word for it. It's all there in the interviews Byrne and O'Brien give to Floyd Norris in today's New York Times. Read the article and listen to the Overstock conference call, and tell me what you think.

If a CEO will fib to Wall Street the way Patrick Byrne appears to be fibbing on his earnings call by hosting an orchestrated short-bashing rant from his "not familiar" friend Bob O'Brien, you never know what he might do when it comes to running a business.

I am not making this up.

February 28, 2005