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Memories of a Friend

Par kid dynamite

It’s been 1 year since Oscar died, and I’ve been reluctant to write an obituary for him because I didn’t think I could put into words how truly special he was.  Still, the dude deserves to be immortalized on the bits and bytes of this former C-list blog, especially since these pages were once a chronicle of his antics and growth.

I have, in my head, a vivid recollection of many important Oscar Events.   I remember the West Village pet store where my wife was first inspired by That Doggie In the Window: he turned out to be Wickett, who was later purchased by a local woman and would eventually be karmically reunited with Oscar as a part of the cutest dog walking pack ever.  I, however, refused to buy a dog from a pet store, and started the hunt for a local Brussels Griffon breeder – no easy task in late 2005.  We went up to Newburgh, NY, an hour north of the city, to view her new litter of pups – our first time having the experience of interacting with a new litter.

First pic

First pic

Not-yet-Oscar chose us: while some of the rascals ran around and yipped, he came right over and tried to climb up my wife’s hair.  Not-yet-Oscar was a people dog, as was evident from the start.  “Oscar.” My wife quickly pronounced.  She had the name in mind already, and he fit like a glove.  But Oscar wasn’t ready to come home with us – he was only 6 weeks old I think – so we’d have to wait for another month before we could abscond with the precious little nugget.  In the meantime, the breeder would send us pictures, and patiently answer our crazy soon-to-be-first-time-puppy-parents questions.

I vividly remember the first night we brought Oscar home.  He cried, which made my always-compassionate wife cry: “we ripped him away from his whole family!”   We had a master plan to definitely NOT let Oscar sleep in the bed – a master plan which lasted precisely one night.   My wife actually slept on the floor with him in a sleeping bag on the second night, since I wouldn’t let the not-yet-housetrained pee machine in the bed yet.    By night 3 he’d already won my heart, and instantly showed his talent as a natural cuddler.

We’d carry Oscar to puppy training classes through the streets of the West Village in a Baby Bjorn – like a real baby, only cuter – stopping sidewalk traffic along the way.  At barely 6 months old, he was already showing signs of genius, wowing all visitors with his “tissue trick” which my wife had taught him.  He was our baby, and adorned our holiday cards.


At 9 months old we were at some outdoor fair where they were doing the Canine Good Citizen test, which Oscar aced.  The evaluator told us that she’d never seen such a calm puppy, and mentioned Therapy Dog work for us.  When Oscar reached his first birthday, qualifying for Therapy Dog certification, we quickly got him evaluated, and were proud as can be when he passed the test (which included such challenges as walking past a discarded bacon egg and cheese sandwich without stopping to grab it – he passed that portion but it almost trapped me…)

therapy dog

therapy dog

We began weekly visits at St. Vincent’s Hospital, where we’d take Oscar to visit patients in the hospital.   I’ve written more than a dozen posts about the gift that Oscar was on his therapy dog travels, and I’d encourage you to read them, and to pursue such volunteer activities with your own pooch.

When we walked around the West Village, where we lived, Oscar had a map in his head at all times of the nearest place to get dog treats, and he’d zero in on the nearest one like a honing beacon as we moved around.     Oscar used to rule the Washington Square Park dog run with his relentless energy and good humor:


On a trip to my wife’s parents’ house, Oscar nearly started a stampede by jumping through a barbed wire fence and chasing a herd of cattle through the mud, returning with a proud smile.  Upon our return to NYC, my wife demanded that I look up farms in New Jersey who had sheep they used for shepherd trainig for Oscar to “chase.”  I actually called one of these farms to ask, “Um, hi, I don’t have a shepherd, I have a Brussels Griffon who just wants to come chase your sheep… hello?  hello?”

Oscar - 2


As we spent more time with him, Oscar cared less about crushing it with other dogs at the dog park, and became even more of a people-dog.  We knew if he ever strayed from our side, there was something wrong.  One time, at a visit to my dad’s house, Oscar retreated to the other room.  An immediate trip to the emergency vet confirmed he had an ear infection and needed meds.



Eventually, my wife and I both quit our jobs – decisions in which wanting to spend more time with Oscar played no small part – and we bought him a house in the country up here in New Hampshire.

Here’s the thing about this special little dog: he was the best of both worlds.  Oscar was a lap dog of the highest order, but also a durable outdoor companion.   We have a bench seating nook in our kitchen, and Oscar would never sit up there by himself, but anytime ANY person came over to visit and sat down in that nook, Oscar would hop up and climb right into their lap.  Brussels Griffons are known as “velcro dogs” who often choose one person as their own, but Oscar was versatile: if you had a lap, he’d make it his own.


Make no mistake, though, this wasn’t some fragile little pocketbook dog: Oscar was capable of hiking any trail I could tackle, and took his job of defending our homestead seriously.  Often times on a hike with Oscar, I’d turn around to see if he’d managed to scale the rocks I’d just hopped over, and I couldn’t find him in my sight-line because he was at my heel already.  At home, if anyone was within eyesight of our yard or window, Oscar would alert us with a Chewbacca growl, and then, if the interloper continued to approach, more urgent barks.

Therapy Dog, Master Cuddler, Able Outdoor Companion,  Oscar would add “Foster Brother” to his resume shortly after our move to NH when we fostered and then adopted Mr. Griffey after Oscar welcomed him with open paws.DSC01696


Oscar was everything to us.  We didn’t want to go away because we didn’t want to leave him.   We’d rush home from dinner because we didn’t want him to have to be without us.   We anthropomorphized relentlessly and obsessively, always trying to make sure we didn’t have to be away from the little dude.

Everyone thinks their dog is The Best Dog, but man, Oscar was special.  He’d look at you with those big, brown, human eyes, and stare right into your soul.

We’d hoped that since he lived The Best Life, we might get more time with Oscar than the 12 magical years he gave us.   Losing him was, without a doubt, the hardest thing my wife and I have gone through in our lives.   I think I cried once in my adult life before Oscar died, but whooooo baby, that changed when I lost him.


Today, 364 days later, the pain hasn’t gone away.  We miss him every day, and would do anything to get him back.

DSC_0069 CIMG3141

I love you buddy.  So much.  So much.  We think about you every single day.

Goodnight, sweet prince.

20151220_090550 - Copy


The post Memories of a Friend appeared first on Kid Dynamite's World.

Revisiting RumbleOn

Par kid dynamite

I wrote about RumbleOn ($RMBL – long) in April of last year and again in June.  The stock had quite a ride last year, trading up to $11, and now back to about where it was at the time of my second post.

RMBL 1 year chart

RMBL 1 year chart

In the meantime, what was formerly a “simple” story –  that of a liquidity provider in the used motorcycle market who had agnostic distribution channels – became complicated.

RMBL bought Wholesale Inc, a used car wholesaler, and their accompanying logistics business, Wholesale Express.  This surprised me because there’s already ample competition in the used car space and ample secondary liquidity.   In other words, it’s hard to sell a used motorcycle – that’s where RMBL’s value add came from – but it’s easy to sell a used car (even if you’re not always happy with the price).

RumbleOn’s management has, quite literally, gone with the “trust us – this is our expertise” line of explanation: I believe it was CEO Marshall Chesrown who, at an investment conference, said something along the lines of “you can question Steve (Berrard, CFO) and my expertise in powersports, but I don’t think you can question our expertise in autos.”   It’s possible I have that quote backwards: that Berrard said it referring to Chesrown – you should be doing your own due diligence anyway!  Here’s what I wrote in the comments of my prior RMBL blog post after the Wholesale acquisition:

1) they whiffed on Q3 earnings and finally got off the $100MM guidance that was a mistake to begin with
2) this lowered guidance was for the “right” reason: they’re not sacrificing profitability for the sake of topline sales: margins are holding up and expanding
3) I think the motorcycle story was easy to understand and it made sense once people understood that RMBL was a motorcycle ACQUIRING company – and that the selling part was the easy part of their model
4) I think the auto expansion complicates that story greatly, and it confuses me. But it’s also the bread and butter of Berrard and Chesrown. I do think they lost some credibility with The Market with the $100mm 2018 guidance that they just finally abandoned though
5) I don’t understand how RMBL plans to acquire cars from consumers. I have talked to management at length friday and sunday and I still don’t understand their edge against the ample liquidity that already exists both online and brick and mortar in the used car space
6) that’s why i didn’t think they’d get into autos, even though everyone else apparently thought they would
7) Management points out that the 900 pound gorilla in the used car space is Carmax, who has a 2% market share… ie: the market is huge, and they only need to capture a tiny portion of it. I hate TAM (total addressable market) arguments, but Chesrown and Berrard have proven experience and success in this exact segment previously. That doesn’t mean they’ll succeed here, but again, this IS their bread and butter
8) despite having a conference call, PR and shareholder letter, i think management did a terrible job explaining how this acquisition isn’t just “buying another crappy used car dealer”… Wholesale is essentially a dealer arbitrageur – they buy from dealers (auctions) and sell to other dealers… RMBL technology might be able to help their process incrementally, and there will be logistical synergies, but I still fail to see how they’ll be able to buy cars from CONSUMERS and sell more cars to CONSUMERS, which is where all the money is.

i sold 1/3rd of my position on the run from $5 to $10+. I have done nothing in the last month or so.

When they announced the Wholesale acquisition, RMBL also announced weak Q3 earnings, a Q4 guide down, and a secondary offering to fund the acquisition.  A bright spot was that one of the reasons earnings and guidance was weak was because management was refusing to sacrifice profitability for the sake of printing top line sales numbers.

A core of the thesis in this stock has, of course, always been that Chesrown and Berrard ARE experts in this space, so longs still have that going for them.

On the negative side, the company did multiple secondary offerings in the past year, including one this week that again took the market by surprise, and leaves me shrugging in confusion considering the earnings pre-annoucement the company released at the same time: they have plenty of cash on the balance sheet, and the cash burn in Q4, despite what I expect will be abominable numbers out of the legacy used-motorcycle biz, seemed to be not so bad.

So where do we stand?  Look: as I said already, I thought the story last year was easy: low float, huge management ownership, easy story to tell, ambitious growth.  The story has changed a lot, and while major growth happened, the overly ambitious growth that Management had guided for didn’t come to fruition – but for the right reason (refusal to sacrifice profitability and to simply ramp marketing spend to crank revenue metrics)!  However, I guess if they were going to continue to dilute via secondary offerings, the stock probably would have reacted better if they had done the “wrong” thing and just printed the top line numbers.  Who knows.

In my first blog post, I wrote:

“In my opinion, the main “risk” to how great the RumbleOn story sounds is that the guys telling it are expert storytellers!  They’re literally PROFESSIONAL car salesman, and everyone knows that car salesman are, well, let’s just say they can sell – any story they tell is likely to sound compelling!”

This remains true!  If you talk with Marshall Chesrown on the phone, you are likely to come away believing in the story he is selling!

I think the key question RumbleOn investors need to answer is: does RMBL actually have a data edge?  I have spoken with both Chesrown and Berrard about RMBL’s data, and I still don’t think I understand what is so great about their data.  Let me be clear: that doesn’t mean they don’t have a data edge.  It means that I haven’t understood management’s answers, and haven’t pressed them enough to decide if I’m not getting it because I’m an idiot (likely?) or because they don’t actually have a data edge.   RMBL certainly has a technology edge that they can bring to old school dealerships, and it seems like that’s the route they’re taking now, trying to add value to established auto dealers via technology and logistics.

My position in the stock is slightly less than half it was at its peak, and readers should have NO EXPECTATION that they will be updated if and when my positions change.  There is no investment advice in this post or any other post on this site!




The post Revisiting RumbleOn appeared first on Kid Dynamite's World.

Let’s Get Ready to RumbleOn

Par kid dynamite

A friend of mine sent me a link to a thread on the value investor board CornerOfBerkshireandFairfax, where the subject was a stock I’ve written about and am long: $RMBL.

There are a number of things that I think the posters in the thread are confused about, but I didn’t have to write a blog post about it, because as I was getting ready to, a different friend – the one who put RMBL on my radar in the first place – emailed me his own response to the CornerOfBerkshireAndFairfax thread, which he is also trying to post there, if they accept his membership.  What follows is his response, which I think accurately outlines the RMBL long thesis.  I have edited his email slightly for grammar and punctuation.



“Long post, have patience and I apologize for jumping around a bit….

I came across this blog through a Rumbleon Google alert and it’s great to see active discussion on RMBL.  Full disclosure, I am long just under 1% of the fully diluted shares.  All open market purchases, roughly in line with current share prices.  This story came across my desk when they were seeking to Re-IPO in October.  Given the banks involved, I chose to pass and do extensive research and likely acquire shares cheaper than deal price.  ($5.50)

I have been investing in the markets for 15 years, mainly in micro/small caps, and this is my favorite situation I have ever been involved with.   Some additional color on what I focus on – I buy a few large positions a year, at most, and I will opportunistically trade around unique intraday or weekly situations outside my core positions.  My philosophy is every good story eventually has its day/week/month in the sun and the day trading chat rooms have replaced the funds that used to build large positions in microcaps.  (they create the parabolic moves) Most microcaps eventually go belly up, so with the right story, fundamentals, mgmt. team, etc…it’s a matter of time until the stock catches fire.

With that said, I also start my due diligence backwards, starting with the cap structure.  Buying a STORY seldom works as most microcaps I encounter have messy cap tables littered with warrants, converts and other dilutive instruments that make it very challenging for the stock to appreciate.

Rumbleon checks all the boxes in what I look for except one – volume….

Small Float – Check

Large Insider Ownership – Check

Experienced Jockeys – Check

Explosive Growth – Check, Check

Disruptive Technology – Check

Large TAM – check

Scalable – check

Volume – not yet (this is where the opportunity is)

So let me touch on a few points about this company that were raised on this forum and others that I have sorted out through 20+ calls with mgmt..

At its simplest form this is an incredibly powerful business model that is infinitely superior to Carmax, Carvana, Vroom, Blinker, Beepi (toast), Shift, Auto 1 Group and any other used auto tech startups.  Carvana loses ~$5,000 per car and the thesis is that they can achieve Carmax margins at scale.  They currently buy nearly all of their cars through auction – it’s going to be very difficult to meet their claims through this acquisition strategy.

RMBL is strictly a user acquisition marketing arbitrage story with no current competition and all metrics are pointing up and to the right.  Distribution is not the concern, acquiring bikes is the challenge.  Back of the envelope math shows that they are acquiring bikes at sub $200 – conservative estimate.  That cost should decline month-over-month as they continue to refine their digital strategy, employ retargeting techniques, build a recognizable brand and experience some notion of referral/word of mouth traction.  At $200 they are still profitable on a unit basis.  Even at $200, it’s extremely compelling.  This is exceptionally low for a big ticket item.   This is a result of a ~15% conversion rate which includes deals that cant be touched because people are underwater on their loans.  (a massive opportunity if they can crack it with a banking partner)  So that 15% conversion is more like 30% of actual legitimate “doable” deals.  The reason for this is motorcycles are a WANT not a NEED.  You have an engaged audience that is very captive.  Digital marketing performs great when you quickly identify the audience and laser focus ad placement.

A note about digital ads:  If you’re like me, I see RMBL ads all day every day on my FB and IG feed.  You will see loads of angry people complaining about low-ball offers.  This is totally natural as bikes are more sentimental/emotional things to people then cars.  We are accustomed to getting low-ball offers the car dealership and for trade ins.  This is how the world works and has worked forever.  For many people they are experiencing this for the first time with their bike.  What it shows is that a lot of people are curious about selling their bike.  From conversations with the team, they are capturing a lot of these same people that complain and then a few weeks later realize that Peer-to-Peer methods are not worth the headache.  People are also delusional in what they think the value of their precious Harley Davidson is.  Fat margins on new bikes cause this reality check.  I am not a motorcycle owner but I am a boat owner and it’s a very similar experience.

One concern brought up on this forum is the inventory tracker on the website.  It’s natural to think that as unit volumes increase so should the inventory count, but if the machine is well oiled this is not the case.  What we are currently witnessing is mgmt. choosing to keep active inventory in the 600-800 bike range. If you are acquiring bikes at a more rapid pace (which we know they are by looking at cash offers) then you need to sync that with distribution.  I suspect, based on conversations with the team, that they throttle their digital spend and acquisition efforts with the auction calendar in mind. I expect the active listings to grow moderately over time but we do not want to see them grow too quickly.  They are churning efficiently.  As clearly indicated in the deck, they are making enhancements to the website to drive higher margin business by selling bikes to consumers vs. dealers/auctions.  This will result in longer inventory turn over and they should quickly determine the inflection point at which inventory turnover maximizes gross profit.  As a shareholder I would encourage them to increase the listing days to achieve higher margins and also ramp digital spend as every profile captured helps improve the moat and build the data set.

An anecdote about Data: Blockbuster was sold to Viacom for $8.5 billion not because of their physical locations but solely for the data.   RMBL data will prove to be valuable to a variety of suitors.

Suitors – who would acquire this company?  Most people would think Harley Davidson and this is plausible but from my research the auction companies are more natural fits.  Copart (CPRT) Adesa (KAR) and COX, the owner of Manheim Auctions, KBB and others.  (privately held conglomerate)

Valuation – The valuation of this company is a tough nut to crack.  I’ll give my $.02.  Since 2013 over $1billion has been invested, mainly by VC’s, in the “online” automobile sector.  I am referencing the companies above (Vroom, Carvana, etc.). If RMBL were privately held and walking down Sand Hill road in the Valley they would certainly command a $125-$200m valuation given their traction, asset light business model and TAM.  Where do I come up with these numbers?  They are based on data points of a variety of seed, series A-F and IPO data.  More importantly, I have spoken to well respected VC’s to get a gut check and they confirm that valuation range and say it could be light if the demand was there.  So, we basically are buying a company with revenue growth typically reserved for the VC/PE community at a seed/series A type valuation in the public markets.  Another way to skin it, they are trading at 1 times Q2 expected revenue.

The above statement will likely spur the question, “why did  they raise money and go public and not use private capital?”  The answer fairly simple, the largest shareholder, Berrard, is a public markets guy.  They funded the company by writing their own checks along with friends and family.  They didn’t need outside investment which comes with strings attached in the form of opinions. These guys have 40 years of auto experience and don’t need advice on how to run this business.  Next question, “Why did they do it with Vroom?” They needed large slugs of outside capital because Vroom is not asset light and inventory turnover is longer.  Through their experience, they have developed a streamlined mouse trap in an off-shoot of the car business.  Vroom brought on the Priceline CEO to run it and Marshall and Steve stepped away.  For what it’s worth, Marshall’s son is still the Chief Revenue Officer and both guys have large equity stakes in Vroom.

Craigslist, Ebay, Cycle Trader and others are not incentivized for the bike to sell.  The listing fees are their bread and butter.  Some semblance of liquidity exits in the bike market as it does in the crypto currency market.  But it’s far from perfect- you cant efficiently buy/sell cryptos like stocks.  RMBL is not for everyone, if it were we wouldn’t have an opportunity to own it.  Carmax isn’t for everyone but the convenience outweighs the headaches for a lot of people.  Same thing here.  There are a staggering amount of Harley Davidsons with non-active registrations.  That means they are sitting idle in garages collecting dust because they are a show-piece or the owner doesn’t feel like dealing with knuckleheads showing up at their house to kick the tires.  It’s like barn finds of pristine bikes and the auction companies are taking notice giving RMBL their own lane these days.

I originally was introduced to Steve Berrard through Services Acquisition Corp, a blank check (SPAC) that acquired Jamba Juice.  I was a large holder of the SPAC and was making a pure bet on Steve.  He delivered and the SPAC unit was up 50%+ upon deal announcement, which is far from the norm in the blank check spac sector.  This is his 13th pubco and he didn’t come out of retirement for money, he sees a massive opportunity.

Marshall and Steve met when Autonation bought Marshall’s company for $100million.  Does his BK scare me?  No, he went belly up after 2008 along with a lot of really smart people that were leveraged and the banks stopped lending.  It is certainly a red flag on the surface but find me successful person that doesn’t have several bad deals in their past.  They all do.  (plus over $300million of funding was put into Vroom after the BK.  Catterton, T Row Price, etc.. It didn’t bother them, shouldn’t bother us)

It’s also a good idea to listen to their last quarterly conference call.  These guys are professionals and miles above most micro cap teams.

What is my price target?  It all depends on what drives the buying and interest.  I can easily see a major publication writing a story about, “Meet the team disrupting the used motorcycle space” or next quarter earnings being the match that lights this up.  Given the low float, I expect to see a day that it trades several million shares moves to the $10-$20 range.  Once the volume comes, it will open the story up to many potential investors.  Low float mania is a real thing and we see companies moving wildly with little-to-no underlying sustainable business.  When this moves and people dig deeper they will be happy with what they find.  This is not the norm in microcap world.

In summary – creating liquidity in an illiquid market tends to create significant value.  I have never witnessed a micro cap grow from a few million in revenue to $100 million in less then two years.  It simply doesn’t happen.  Will they achieve this revenue target?  Yes.  They can juice the marketing spend to hit it.  Can they do it while creating positive cash flow?  That remains the question.  It’s only a matter of time until this disruptive story hits other radar screens as the growth simply can’t be ignored for long.

Happy to continue the conversation.”

previously:  RumbleON – Disrupting the online used Motorcycle Market

RMBL latest investor deck


The post Let’s Get Ready to RumbleOn appeared first on Kid Dynamite's World.

Senomyx: An Activist Campaign

Par kid dynamite

Some of you may remember a failed activist campaign at Senomyx ($SNMX) within the last few years where the would-be-activists weren’t actually legit shareholders.   Today marks the beginning of a new activist campaign, led by my former eBFF, @given2tweet, who is a real shareholder of the company.   Read the letter for yourself:  (disclosure: I am long $SNMX, but that doesn’t mean you should be)


Demands Resignation of Chairman, Kent Snyder

Requests Immediate Appointment of Shareholder Representative to the Board

Skeptical of Board’s Ability to Execute on Strategic Review

Calls Upon Board to Immediately Initiate a Comprehensive Sale Process

SAN DIEGO, June 12, 2018 /PRNewswire/ — Matthew Turk, one of the largest individual shareholders of Senomyx, Inc (SNMX) (the “Company”), beneficially owning approximately 4.0% of the Company’s outstanding common stock, today delivered an open letter to the Senomyx Board of Directors (the “Board”).  Mr. Turk had sent a draft of the letter privately to the Board in the hopes of engaging in meaningful discussions with the Board to address the Company’s dismal stock price performance, management’s failure to obtain corporate partnerships and his concerns with the lack of accountability for the Company’s poor performance.  Instead, the Board, responding through its legal counsel rather than directly, refused to provide any feedback to the legitimate concerns raised by Mr. Turk, leaving him no choice but to release his letter publicly.

The full text of the letter follows:

June 12, 2018

Board of Directors of Senomyx, Inc.
4767 Nexus Center Dr.
San Diego, CA 92121
Attention: Corporate Secretary


  • Senomyx shareholders have suffered a 78% loss in stock value since Senomyx’s IPO in 2004
  • Management has failed to sign a single “partnership” since September 2016 despite claiming to have interest from at least 25 companies
  • Senomyx shareholders expressed their dissatisfaction at the last annual meeting, with Chairman Snyder receiving more WITHHOLD votes than FOR votes – Chairman Snyder should resign
  • The Board owns just 1.3% of the Company, with 5 of the 7 Board members owning combined only 11,500 shares – a shareholder representative must be immediately added to the Board  

To Chairman Snyder, CEO Poyhonen, and the Senomyx Board of Directors:

I am a long-term shareholder of the Company, having first purchased shares in April 2014.  I currently own 1,954,534 shares of common stock of Senomyx, Inc. (“Senomyx” or the “Company”), constituting approximately 4.0% of the Company’s outstanding common stock.  Unfortunately, given the repeated rejection of my requests to assist the Board, I have no choice but to write this letter following the devastating shareholder vote at last month’s Annual Meeting, where a majority of shareholders withheld support for Mr. Snyder as Chairman and barely supported Mr. Poyhonen or the rest of the Board for re-election.  In addition, a majority of shareholders voted against the proposed compensation plan for senior management and voted against amending the employee stock purchase plan.  Given these results, shareholders are clearly dissatisfied with the Board.  Dramatic change is required to preserve and maximize shareholder value.

I believe the best path forward for shareholders includes the following actions:

  • Chairman Kent Snyder should immediately resign;
  • the Board should immediately appoint a shareholder representative to the Board; and
  • the Board should authorize its advisors to immediately initiate a comprehensive sale process.


In the past 14 years since Senomyx went public, the performance of the Company’s share price under the leadership of Mr. Snyder (as CEO and Board member since 2003 and Chairman since 2008) and Mr. Poyhonen (as CFO since 2004, President since 2009, and CEO since 2014) has been nothing short of a disaster.  On June 22, 2004, when the Company went public, the share price was $6.00, as compared with the $1.30 it was on June 11, 2018.  $10,000 invested in Senomyx at its IPO would be worth only $2,168 today.  The same amount invested in the Russell 2000® index (IWM) would be worth $29,186 a 1,345% difference.


Senomyx has depended on corporate partnerships since its inception.  Most recently on September 30, 2016, the Company entered into a revised partnership agreement with its longstanding exclusive partner, PepsiCo, which resulted in a decline in the annual funding provided to the Company.  In return, Senomyx was allowed to pursue partnerships with other companies, thus making the agreement non-exclusive.  This change, coupled with Senomyx’s non-beverage partner, Firmenich, declining to renew its partnership in the summer of 2016, resulted in a significant decline in annual development funding.  Specifically, in 2015, the last full year with the old PepsiCo & Firmenich partnerships in place, Senomyx produced $17.8 million in development revenues.  The revised PepsiCo agreement was projected to bring in approximately $6 million annually, with the Company relying on new partners to bridge the new funding gap.  The Board’s idea, as told to shareholders, was that a syndicate of multiple parties would be formed to bring in substantial additional revenues.  Senomyx has failed to deliver a single new partnership since ending its exclusive partnership with PepsiCo, and development revenues decreased by more than half to $7.8 million in 2017.  The Company has failed to deliver on these new partnerships despite its claims that it had upwards of 25 potential collaboration candidates:

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  • On an October 27, 2016 conference call to discuss the new PepsiCo agreement, Mr. Poyhonen said: “This represents a significant shift in strategy, from our initial agreement, which granted exclusive rights in non-alcoholic beverages. We’re now excited to now have the ability to expand the non-alcoholic beverage market, the most valuable category for our products. We think the ability to share our preparatory flavored ingredients and natural sweeteners with other companies, will not only contribute to revenue growth, but also has the potential to play key role in addressing [ph] global health initiatives in a larger scale.”
  • On a March 2, 2017 conference call, investors were told: “We have about 15 excellent collaboration candidates and of that, six have actually tasted siratose. It was tasted in a blinded [sic] taste test in a simple solution and the feedback was outstanding.”
  • On an April 27, 2017 conference call: “Potential partners continue to express significant interest in our natural sweet program as they view it as an initiative that can support their calorie reduction goals, while maintaining the great taste of their product offerings. We have built a pipeline of about 20 excellent collaboration candidates and we remain confident in our ability to begin adding partners to our syndicate during 2017.”
  • On a July 27, 2017 conference call: “Potential partners continue to express significant interest in our natural sweet program as they view it as an initiative that can support their calorie reduction goals, while maintaining the great taste of their product offerings. We have built a pipeline of over 25 excellent collaboration candidates and importantly we have also grown the number of term sheet proposals under discussion with these companies.  We remain confident in our ability to be an [sic] adding partner’s [sic] to our syndicate during 2017.”
  • On a November 3, 2017 conference call, with just 2 months left in 2017: “During the third quarter, our business development efforts have focused on advancing negotiations with the most promising collaboration candidates. We remain confident in our ability to begin adding funding partners to our syndicate during 2017.”
  • In the January 18, 2018 presentation at Needham, the deck claimed that the Company was “Pursuing R&D Funding Syndicate with select companies” and in “Ongoing discussions with ~30 candidates”
  • Despite all that, on a March 8, 2018 conference call, after all the promises and information provided, shareholders were finally told: “Looking back at our business development goals, our confidence to deliver new research funding for our natural sweet program was based on advanced negotiations, but circumstances outside of our control resulted in changes to key financial terms and we decided to pass on the collaboration at this time.  We remain on track with our development timeline for Siratose.”

From the beginning, shareholders were told that there were going to be numerous additional partners, a “syndicate.”  Shareholders deserve answers for how the Company failed to sign even one new partner since September 2016 despite claiming in March 2017 to have “15 excellent collaboration candidates,” a number that increased just a month later to “a pipeline of about 20 excellent collaboration candidates” and then further increased to “over 25” in July 2017 and “~30” as recently as January 2018.  Without any prior warning, shareholders were then told in March 2018 that “circumstances outside of management’s control” derailed every potential partnership.  On a March 9, 2018 call with management, I was told that an employee’s death at a potential partner caused negotiations to derail.  Even if this is true, what happened to the other “~29” companies that management was negotiating with?  Something went terribly wrong and management needs to be held accountable for their failure to accomplish this critical milestone that is necessary to drive the business forward and to secure crucial non-dilutive funding.


Why has the Board regularly rewarded management with excessive stock options despite continued value destruction?  When Mr. Poyhonen became CEO in Jan 2014, he was granted 500,000 options at $6.67 per share. In 2015 he was granted 240,000 more at $4.41.  In 2016 he was granted 266,000 more at $2.97. In 2017 he was granted 417,000 at $1.02.  In each year from 2014 to 2017, Mr. Poyhonen has been granted options, and in each year the option price has been lower, thus rewarding management’s ineptitude at the expense of shareholders.  Again in March 2018, he was granted 363,000 more options at a price of $1.05, essentially the same price as the previous year despite failing to sign a single additional partner.  In addition, in 2017 and 2018, the Company granted Mr. Poyhonen more options than they did in 2015 and 2016 despite the fact that the Company’s stock price was materially lower.  Instead of being penalized for a plummeting stock price and failure to accomplish critical goals, Mr. Poyhonen has been consistently rewarded with a larger share of the Company.

Despite a lack of execution of the Company’s basic strategies, the Board seems content to continue to reward this poor performance, with $1 million plus compensation packages for Mr. Poyhonen.


Together, despite having been at the Company for a combined 29 years, Mr. Poyhonen and Chairman Snyder collectively own just 1.3% of the outstanding shares of Senomyx, with the majority of these shares being accumulated via the exercise of 2003 stock options priced at just 74 cents.  The five remaining independent directors joined the Board between March 2005 and March 2018, and own only 11,500 shares combined, worth $15,755 and representing only 2/100ths of 1% of the Company despite a combined 34 years on the Board and total Board fees of more than $1.3 million.  Where is the shareholder representation or alignment with Company shareholders?  Given the long history between Chairman Snyder and Mr. Poyhonen, together with the complete lack of Board ownership, one must ask: Is Senomyx being properly overseen and governed by its Board for the benefit of shareholders?


Clearly, it’s time for a change in approach to the management of Senomyx.  In communications I have had with them, management has told me they “value my opinion as a large shareholder and believe they have provided me with consistent access to senior management to share my views.”  I don’t merely want management to hear shareholders’ views, I want them to listen to its shareholders and act in their best interests.  

I have tried to be of assistance to the Company.  I first asked for a Board seat in April 2018, which would be more than justified by my overall level of investment and lack of shareholder representation on the Board.  The Board did not take the time to even meet with me, but instead I was denied via email.  I then asked to be an unpaid Board observer so shareholders would have representation during the Company’s strategic review process.  In a May 14, 2018 meeting with Chairman Snyder, he questioned why boards even need shareholder representation, but promised to bring my request to a vote by the full Board.  To no one’s surprise, both requests were officially rejected on May 29, 2018, with Mr. Snyder stating in a letter that the requests were “not in the best interests of all shareholders,” with no further explanation.

It has become clear to me that a series of actions need to take place immediately in order to change the trajectory of Senomyx and to prevent the Company from running out of cash by as early as June 2019.

I hereby demand the following:

  • Immediate resignation of Mr. Snyder as Chairman.  At the 2018 annual meeting of shareholders, Mr. Snyder received 10,172,969 votes FOR and 11,101,816 WITHHELD.  Mr. Snyder has been at the Company for 15 years and has failed to preserve, let alone create, shareholder value.  Shareholders have spoken with their vote, and it is the duty of the Board to act accordingly.
  • Immediately appoint a major shareholder to the Board.  The appointment of a shareholder representative and a corresponding commitment to allowing open nominations to the Board next year from candidates suggested by major shareholders, is necessary to ensure that the Board’s interests are aligned with the Company’s shareholders.  Without any shareholder representation or meaningful ownership on the Board, we cannot trust that the current directors are acting in the best interest of shareholders to undertake a comprehensive strategic review.
  • Immediately undertake a comprehensive sale process.  Although the Board and management announced a strategic review process earlier this year, shareholders have a right to be skeptical of its sincerity and the Board’s ability to act in shareholders’ best interests.  As I have outlined, the Chairman, CEO and Board have no significant economic risk at stake to do anything other than preserve their positions.

The language in the March 8, 2018 press release by the Company is highly concerning in that it states “engaging an advisor enables us to consider all possible options to support the growth of our business in order to maximize value for our shareholders.”  How can a full sale of the Company be on the table if the purpose of the review is to support the growth of the business?  Further, upon meeting with Mr. Snyder on May 14, 2018, he stated that it is possible the Company might pursue a partial sale/monetization to fund future cash burn, similar to what they did in November 2017 when they raised $10 million.  This is also highly concerning given that shareholders could see the Company slowly liquidated over a number of years to support management and the Board’s salaries.

There must not be a slow liquidation of Senomyx, but rather a complete sale either in whole or in parts as quickly as possible to preserve remaining shareholder value. Proceeds from those transactions should be returned to shareholders and not retained by the Company to further enrich management and the Board.

One thing I am sure we all can agree on: SHAREHOLDERS – THE TRUE OWNERS OF THE COMPANY – DESERVE BETTER.  Mr. Snyder’s May 29, 2018 letter stated “The Senomyx Board of Directors and Management are committed to acting in the best interests of shareholders and enhancing long-term value for all shareholders”.  Mr. Snyder and Mr. Poyhonen have had 14 years to accomplish this and the stock is down 78%.  How long do we have to wait?

I challenge the Board to find a single shareholder who owns greater than 1% of the Company that disagrees with the contents of this letter.  Unfortunately, they will have to look outside of the Boardroom for the answer.

I remain ready to work with the Board to substantially improve shareholder value and hope that the Board will act with urgency to take the actions set forth herein. I look forward to a more meaningful response.

Matthew Turk

CC: Steve Wolosky, Elizabeth Gonzalez-Sussman, Olshan Frome Wolosky LLP

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RumbleON – Disrupting the Online Used Motorcycle Market

Par kid dynamite

I’ve said before that I don’t usually write about stocks where I have a position, because my goal on this blog is not to pump my positions or to try to influence the investment decisions of people whose financial situations I am completely unaware of.  That being said, here’s the long thesis for a microcap stock I am currently long: RumbleOn ($RMBL)

RumbleOn seeks to change the way consumers buy and sell motorcycles, and, eventually, other recreational vehicles.   I’ve never bought or sold a motorcycle, but several years ago I did sell my used 2010 Subaru Forester via Craigslist.   I thought it would be pretty easy to post a listing for my car, complete with pictures, and make a sale near my vehicle’s Blue Book Value – after all, I live in New Hampshire, where Subaru is basically the official State Car.   The process was brutal – 95% of the replies to my ad were from dealers who wanted to lowball me, and I felt lucky to get a single interested “real” customer who of course also wanted to lowball me, just to a slightly lesser degree.  I ended up selling my car to this customer and then having to worry about the whole financial end of it: how do you settle a 5 figure deal with someone you don’t know?  I had them bring me a certified bank check, but then I was still worrying: how do I know the bank check is real? I called the local bank to verify it, etc…

The point of my story is that the used car market is robust and efficient, with ample two sided dealer liquidity, and the process of trying to sell my used car online was still an awful one.  Now imagine trying to make a sale in an underdeveloped, illiquid secondary market like the one for used motorcycles: that’s where RumbleOn comes in and what they’re seeking to disrupt.

When you want to sell your bike, RumbleOn asks you to answer a series of simple questions starting with the vehicle’s VIN number, and then adds questions about mileage, vehicle condition, optional ad-ons, and anything else that would be relevant to the value of the motorcycle.  You can upload pictures too, and they have an app that simplifies the process from your smartphone.  Their vast database then produces a cash offer (as a trader, I hate the standard misuse of terms here: they’re really giving you a BID for your bike – but I”ll go with the standard terminology) which they send to you via email, and which you have 3 days to accept.  If you accept the offer, you send RumbleOn the clean title to the vehicle, they route the money to your bank account or send you a check, and they arrange to have your motorcycle picked up from your house – the cost of which is already factored into your bid.  No dealing with “tire-kickers” you met on Craigslist coming to your house.  No worries about getting ripped off by Nigerian Scammers wanting you to wire them some money on Western Union first.  Simple, trustworthy liquidity.

Cliff Notes:  RumbleOn provides easy liquidity for those wanting to monetize their used motorcycles.   Check out some first hand anecdotes from the HD Forums and from the Better Business Bureau.

That’s half the business: they also sell motorcycles, of course.  As someone who buys almost everything online, and who would prefer to deal with haggle-free pricing rather than argue with used-car salesmen, I find this side of the business interesting, but it’s not the sticking point in RumbleOn’s business model:  they’ve amassed enough quality data on the value of used bikes in the secondary market and the auction market that the “selling” end is nearing “science” over “art” for them at this point.  They unload almost all bikes within 30 days, (with a current average holding period of only 19 days!) with those that don’t sell to consumers or dealers going to auction.   Uninformed observers may worry that RumbleOn would take a hit on bikes that are sold at auction, but again: their pricing data for these sales is incorporated into their model for producing offers for purchases from customers, and they have confidence in their margins.  The short turnover period where they quickly unload bikes at auction isn’t a flaw in the model: it’s a key to the model!   RumbleOn currently makes roughly 20-40% (numbers are changing quarter to quarter) of their sales direct to consumers, with the remaining 60-80% being sold to dealer partners or at auction.  Either way, they have an asset-light model and a quick inventory turnover (Again: less than 30 days, currently averaging 19 days).

Let’s talk about the guys running the show.  RumbleOn has a “rock star” management team from the auto-sales world.   CEO Marshall Chesrown sold his own auto-empire to AutoNation two decades ago and continued to act as president of Chesrown Auto Group until he joined AutoAmerica in 2013, and then Vroom in 2014.   CFO Steve Berrard co-founded and was co-CEO of Autonation, and before that was the CEO of Blockbuster Entertainment, and President of Huizenga Holdings Inc.

I suggest you read their bios from the RMBL 10k filing, page 37.

Cliff Notes: Chesrown and Berrard have a history of building, running, and selling companies related to automotive commerce.   Management also owns a huge chunk of the company: their money is where their mouths are.  (see 10k page 41).   As of year end 2017, Chesrown owned 1.73MM shares (11.9MM outstanding), plus 875k supervoting Class A shares (1mm outstanding).  Berrard owned 1.97MM shares and 125k Class A shares. Board member (and Audit Committee Chair) Denmar Dixon owned 1MM shares, and has been a consistent open-market buyer in 2018.

The Company recently signed a $ 25MM inventory line of credit with Ally Bank, and, after their October 2017 uplisting/re-IPO (2.9MM shares @ $5.50) has sufficient cash on hand to fund their operations.   Management has stated multiple times that they have no plans to return to public equity markets for more capital.

One of the first things a friend asked me when I mentioned this stock to him was, “what’s their moat?”  In other words, what is RumbleOn’s competitive advantage?   This is a great question because, in the world of e-commerce, you always have to be looking over your shoulder for how a competitor (or will try to copy your business.  In RMBL’s case, their “moat” is made up of:

  • Their science in pricing: they have enough confidence in their quality of data and software that the “sales” part of “buying and selling motorcycles” is the easy part (ie: they’re not worried about getting rid of inventory)
  • LOGISTICS: in some sense, despite being asset-light (or perhaps because of it?), RumbleOn is a logistics company: they’re mastering the process of picking up your bike and getting it to another end consumer, with dealers/auctions in the middle. RumbleOn’s dealer partner network aims to reach within 200 miles of all motorcycle riders by the end of 2018. (ICR slide 13)
  • rmbl_ICR_slide13
  • First mover: The Company has achieved a solid search footing (ICR slide 11), with top 3 Google Search results in 84 related keywords, and first page results in 50 more.
  • RMBL_ICR_slide11
  • Know-how: as noted above: rock star management who are masters in this space

RumbleOn has a clean cap table and explosive growth prospects.   The company posted $3.4MM in revenues for Q42017, and is guiding to $7.2MM – $7.5MM in revenue for Q1-2018.  They’re guiding to over $ 100MM in revenue for fiscal 2018, and expect to achieve positive cash flow from operations in the second half of the year.  Note that with an average selling price of $10k, $ 100MM in revenue would require them to sell an average of 833 motorcycles per month.  The Domestic used motorcycle market consists of 60k-70k transactions per month (management estimate), with the bulk of those enacted via forums or Craigslist. I believe that their revenue target comes from expansion of the current business alone, but off the top of my head I can think of numerous future market opportunities for them to attack once they show successful execution in the domestic motorcycle market:

  • International expansion,
  • Auction disintermediation: running their own auctions, perhaps even online (EBAY for bikes?)
  • Expansion into other recreational vehicles (4x4s, boats, etc)

It’s hard to find a microcap company with a clean cap table (no screwy converts or prefs or warrants) with massive growth trading at a cheap multiple, and herein lies the rub: a key question any intelligent investor must ask himself is: “why does the market present me with this opportunity?”  In the case of RMBL, I think there are a few reasons why the stock is so “cheap”

  • Microcap: with a market cap in the $50MM range, larger funds can’t or won’t look at it because they can’t build a meaningful position
  • Liquidity: the stock doesn’t trade a ton of volume, and this relates back to point #1
  • Show Me Story: I think the Market simply doesn’t believe management’s growth forecasts

RumbleOn’s business is indeed immature and developing.  This means the company will learn and adapt as they go. In fact, in their investor presentations, they highlight a number of areas where results have diverged from expectations already: (ICR slide 16)


Impressively, their first “surprise” was that their product mix has been more skewed toward non-Harley-Davidson motorcycles, which have a lower average selling price.  However, these lower priced bikes ($ 10k vs $12,500 H-D average price) generate higher gross margin and the same dollar margin as the H-D bikes!

In my opinion, the main “risk” to how great the RumbleOn story sounds is that the guys telling it are expert storytellers!  They’re literally PROFESSIONAL car salesman, and everyone knows that car salesman are, well, let’s just say they can sell – any story they tell is likely to sound compelling!   However, when you combine the market that RumbleOn is seeking to address with the resumes and expertise of senior management and their sizable shareholdings in RMBL, I like the total picture that emerges.

You’ll notice that I haven’t really discussed “valuation” in this post – that’s not an accident.  This isn’t a research report with “price targets” and you aren’t paying me for research:  this is an idea that, like any other idea you read about on the internet or anywhere else, you should do your own work on.   I’ve laid out what I like about the story, and I’m always happy to hear contrarian opinions!

Relevant Links:

RMBL 10k – start here for background of management and how the company was formed

ICR Presentation from RMBL’s investor relations page

BBB Profile

RumbleON Investor Relations

Q4 2017 Conference Call (From 2/27/18)


disclosure: As noted in the first sentence of this post, I am long RMBL.  I have not been compensated by anyone in any way to write this post.  I maintain no obligation to update my readers on changes to my position and reserve the right to sell my shares at any time.

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$XIV Volpocalypse – A Sea of Disinformation and Misunderstanding

Par kid dynamite

If you follow the stock market or the volatility market, you probably saw what happened on Monday afternoon when the VIX volatility index exploded higher, stocks tanked lower, and the $XIV Credit Suisse Velocity Shares Inverse VIX ETN imploded in spectacular fashion.     I’m writing this post because even now, a few days later, I continue to see grossly ignorant explanations of what happened being spread around and praised for their insight.   Let’s start at the beginning, shall we?

There are multiple kinds of ETPs (Exchange Traded Products).

ETFs (Exchange Traded Funds) are generally easy to understand:  the ETF holds a basket of stocks (or something else), and there are APs (Authorized Participants) who can bring that basket of stuff to the issuer in exchange for new ETF shares, or bring the shares of the ETF to the issuer in exchange for the basket of stuff.  This “creation/redemption” mechanism allows arbitrageurs to keep the trading price of the ETF very close to its NAV (net asset value).  If the ETF trades rich (above NAV), the arbs will short the ETF, buy the basket of stuff, and create new shares by delivering the stuff to the ETF, closing out their short.   If the ETF trades cheap (below NAV), arbs will buy the ETF, short the basket of stuff, and bring the ETF to the manager, receiving the basket of stuff to close out their short.  Simple, right?

Then we have CEFs (Closed End Funds), which don’t have this creation/redemption mechanism.  Some of them have a provision where shares can be redeemed, sometimes only at specific fractions of NAV, but with CEFs there are no Authorized Participants who can create new shares to arb situations where the CEF trades rich to its NAV.

Finally we have ETNs (Exchange Traded Notes), which are debt instruments of an issuer, whose value is tied to some underlying formula based on the performance of specific assets.   With ETNs,  as with CEFs, it is often only the issuer who can create new shares to arbitrage situations where the ETN is trading rich.  Many ETNs also have redemption mechanisms where holders can deliver shares (in minimum block sizes) to the ETN in exchange for the underlying assets or value thereof.

Which brings us to the belle of the ball: $XIV: an ETN issued by Credit Suisse, whose performance is tied to the inverse of the daily change of a blended basket of VIX futures.  In layman’s terms, XIV is supposed to perform, on a daily basis, the opposite of how the underlying VIX futures basket performs.  You can read the specifics in the prospectus if you like.   Since the XIV aims for inverse DAILY returns, it must rebalance its underlying holdings every day.   I wrote a lengthy post about the mechanics of similar rebalancing for a leveraged gold-miner ETF several years ago, but let’s talk about XIV specifically, because the concept is actually pretty simple, and will illustrate how the Volpocalypse spiraled out of control.

$XIV had roughly 15mm shares outstanding, and an NAV of roughly $100/share before the SHTF.  Let’s call that $ 1.5B in exposure to short VIX futures.   The XIV website shows the actual mix of FEB and MAR VIX futures that the XIV underlying is short – it usually ranges around 2/3rds 2nd month (MAR)  and 1/3rd front month (FEB), but changes as they roll their futures and as the VIX curve shifts.  As of the time of this writing it’s 3/4 MAR and 1/4 FEB.

So XIV has $ 1.5B notional short VIX futures, and an NAV of $ 1.5B ($ 100/share).   Now let’s make up some numbers: Imagine what happens when the short VIX futures go up 40%.  XIV now has $ 2.1B in short futures exposure, and and NAV of only $ 900MM (because it has lost $ 600MM on the short futures position).  So what does the XIV manager have to do?  He goes out and buys VIX futures to reduce his exposure and get it back in line with the NAV.

Herein lies the rub…  As the XIV manager goes out and buys VIX futures, in massive size, in an illiquid volatility market, he drives the price up…which drives the NAV down… which requires him to buy more VIX futures… Rinse, repeat.   This is why we saw VIX futures spike late in the day on Monday, and especially into the 4:15pm ET benchmark (times on these charts are Central time, fyi).

xiv_vix_feb_02_05_08 xiv_vix_mar_02_05_18

So, the ETN’s own rebalancing creates negative convexity – where its own executions drive the price to a level where it must continue to buy more, higher – a vicious feedback loop.  The XIV prospectus describes it thusly:


And finally we come to the coup de grace – the termination event: the ETN issuer has the right to terminate the product – accelerate redemption of it – if the underlying index moves more than 80% in one day:


It’s important to notice the the damage to XIV is done regardless of if Credit Suisse decides to terminate the ETN or not (they did decide to terminate it).   By the 4:15pm mark of the VIX futures on Monday, the March futures were up roughly 85% (15 to 28? let’s just use rough numbers), and the Feb futures were up roughly 100%.  Since the XIV tracks the inverse of the weighted average of these contracts, what do you think happened to the value of XIV?  Well, the closing NAV was $4.22 per share – needless to say, a massacre, but a massacre that the product was designed to execute.  Note that this NAV destruction wasn’t a result of any decision by Credit Suisse to accelerate termination of the ETN.

So you can see, if you understand how the product works, that the price action wasn’t a result of “margin calls” or “contango” or “Credit Suisse sustaining massive losses on a long XIV position” (that’s an especially nonsensical explanation being proffered by those who don’t understand the mechanics and who have taken screenshots of 9/30/17 dated filings of XIV ownership which almost certainly illustrate prime brokerage or swap positions for CS, not naked exposure.)  Here’s a post that’s gotten a lot of views that offers a series of incorrect explanations of the mechanics of this particular Volpocalypse.   If you understand the mechanics of the $XIV ETN, you understand why most of the elements of that explanation are incorrect.

By the end of the day Monday, XIV’s NAV was $4.22 per share, and it’s market cap was roughly $ 60MM.  The damage was done.  Credit Suisse’s eventual decision to terminate the fund, per the terms of the prospectus, isn’t what causes damage – there’s hardly any damage left – only $ 60MM notional!  The damage was caused by the negative convexity of the rebalance in thin markets, which cascaded the NAV losses for the ETN.

When we look at the XIV chart, I have a few questions of my own:


I often say “markets are not efficient, but they’re efficient enough.”  At 4pm on Monday, XIV was down slightly (let’s call it on the order of magnitude of -10%), but nowhere near as much as the underlying short futures were up.   It looks to me like it was trading at a pretty significant premium to NAV.  Of course, after the 4:15 futures marks, XIV’s decline accelerated, but it was still relatively orderly.   We know that this ETN product is not one with a creation mechanism that any old arbitrageur can use – I think that only CS can “arb” NAV premiums by issuing more shares.   Think, then about what would have happened if they’d done that:  CS was in a position where they needed to buy a massive quantity of futures in order to rebalance the daily ETN exposure.  The ETN was trading at a premium to NAV.  If they’d been able to sell newly created shares, that “creation” would require them to sell VIX futures as a hedge, which could have offset their market-disrupting flows!  Of course, that would probably raise all sorts of legal/ethical/moral issues, and would have seemed filthy to those on the other side of the trade.

Another point of random disinformation that needs correcting: no: XIV holders on the termination date will not receive Monday’s $4.22 NAV. They’ll receive the NAV on the termination valuation date.

This situation was indeed insane, and unprecedented, although many had noted the possibility for it to happen given the low-volatility powder-keg that had settled in and required little more than a match to ignite.  The resulting 5 year chart is one you’re unlikely to ever see again:


Ironically, while some were screaming that CS must have lost a ton of money as a result of this market dislocation (or as a result of assumed exposure that almost certainly doesn’t exist), I’m inclined to believe that they made out like bandits in this event:  They bought VIX futures all the way up and the ETN got the mark at the high of the day…. Sounds like a jackpot for the issuer…. This brings up another question:  why did CS decide to terminate the ETN?  Wouldn’t they want to keep the product open (it opened for trading at a premium to NAV), arbitrage out the NAV premium (which results in issuing more shares and growing the assets of the fund), and try to continue to profit from their own rebalance-created flows?  Or, in this post GFC world, were they concerned that this is a no-win situation with them, and they don’t want the legal headache that’s sure to come, regardless of the risk disclosures in the prospectus?   That’s a question I don’t have the answer to.


EDIT 10pm 2/7/18:  I spoke with a few savvy folks tonight who highlighted a few important points that I over-simplified in my post:  1) CS is the ETN issuer, but they may have laid off their risk exposure (ie: via swaps) to other counterparties.  In any case, someone has exposure that’s being hedged here.  Every time above where I write above about CS hedging, it may not actually be CS…  But the point was that maybe it wasn’t CS who made money as I speculated in my final paragraph, and if CS did lay off the exposure, it could explain why they don’t care about keeping this headache going.  Why would they lay off the exposure?  Another good question.  Risk metric limits on their balance sheet perhaps?  I dunno…  2) There are a number of other volatility-related exchange traded products that had similar directional flows – this event wasn’t just XIV’s “fault” – I hope I didn’t imply that.   3) the end of day VIX futures hedging is frequently done via TAS – trading at settlement – but the TAS collars were exceeded on Monday, resulting in overflow of trading into the live futures market.   Normally, end of day flows are largely paired off via TAS trades in a liquid 2 sided market, which are the futures equivalent of a Market on Close order for equities, only they’re locked in once executed (even though the traders don’t know the exact price yet).

EDIT2 10am 2/8/18  I wanted to make a simplified spreadsheet to illustrate the effect that rebalancing other similar funds has.  I went through the rebalance mechanics for XIV above, but it’s important to note that both the inverse ETNs and the double long ETNs will have rebalance flows in the same direction, even though they offer performance in opposite directions!   This is an underappreciated and coutnerintuitive quirk for many observers…  Check out the spreadsheet (the far right “Rebalance Trade Required” column is the relevant one for these illustrative purposes), where the starting NAV is PURELY HYPOTHETICAL:


Lots of past posts I’ve written about ETFs


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Form Holdings – Blockchain is Icing on the Cake

Par kid dynamite

EDIT: 1/18/2018:  $XSPA sold their blockchain patents to $MARA

EDIT2: 5/16/18:  since this post, the thesis here has failed miserably.  The company, in the Q1 earnings release, made it clear that they were transitioning their business model in an effort to conserve cash: favoring exploration of the franchising model vs company store model.  Net new store growth has slowed to a crawl.  This is a problem because the company overhead is way too high, and they needed to “grow” into it.  Now, since Q1 earnings, the CEO has resigned, and the company did a financing with their disappointing Q2 earnings.  I no longer have any faith in the company, and I have no idea how they will be able to pay back the convert, the 6.5MM in debt to the Chairman, and the prefs a few years down the road beyond that.  As of this moment, I own no shares.



Ok this post requires some disclaimers and discussion:  I’m normally reluctant to write about stocks that represent meaningful weights in my portfolio, especially microcaps, because, I’m not a penny stock pumper, I’m not a chat-room scam artist, I’m not selling subscriptions to followers who I’m trying to plug SOLD TO YOU SUCKA trades on, and basically I don’t want to even give the most remote illusion of pumping small cap stocks that I may be trading.   You should understand that I may be trading the stock at hand: $FH, at any time, and will not update my readers as to my buys or sells.

Unless you’ve been living in a cave, you’ve probably seen the blockchain / Bitcoin / crypto-currency mania spill over from the coins and alt-coins themselves to microcap, low float stocks who put out Bitcoin or blockchain-related press-releases.   Past examples include stocks like $MARA, $RIOT, $LFIN, $NETE, $NXTD, $GROW, $DPW (feel free to pull up some charts of those gems).  Today, the insanity seemed to peak early this morning with the news that $LTEA – Long Island Iced Tea Company, would change its name to – I’m not making this up – “Long Blockchain Corp,” and they *LITERALLY* said (emphasis mine):

“The Company is already in the preliminary stages of evaluating specific opportunities involving blockchain technology.”

I mean, I feel like every company is in the preliminary stages of evaluating blockchain opportunities… but anyway, the stock reacted, trading up as much at 500% at one point pre-market and closing up almost 200% (that’s a near triple on the day):

LTEA Intraday 12/21/17

LTEA Intraday 12/21/17

Now, I don’t own $LTEA, I never have, I hopefully never will.  But I do own a significant position in $FH (Form Holdings), which I have been involved with for a number of years (footnote 1).   $FH was formerly known as $VRNG, and in its past life was a company seeking to monetize intellectual property:  patents.  Their most “valuable” patent in theory was related to internet search, and was invented by Ken Lang, a former Lycos executive and former $VRNG board member and Head of Technology.   As long-time followers of this stock know, the lawsuit $VRNG brought against $GOOG met an ignominious demise (some say, unjustly), although $VRNG did manage to later collect on a settlement with ZTE and used the cash to go in a new direction, becoming a holding company which bought (and later divested) FliCharge, a wireless charging company, XPresSpa: a company which does airport massages and spa business, and Group Mobile which makes rugged mobile computing devices.

Lately, $FH has been focusing on divesting non-core businesses: they’ve spun out FliCharge (while still maintaining royalty rights) and are currently working on divesting Group Mobile to focus on the XS business.  They also own a 8.25% stake in Infomedia.

The Company ($FH) has a bad rap as a stock that’s not been kind to shareholders in the past, but I think that many observers miss the shift in the company’s business:   bystanders mock “airport massage” but the business is steady, profitable, easy to model,  and offers a sizable cash-on-cash return on investment – contrary to the old volatile, risky, chunky and hard to model patent business.  Form Holdings’ XPresSpa (XS) segment is cash-flow positive, and their Group Mobile business is basically cash-flow neutral, but Form is working to divest it anyway to focus on the growth and profitability of XS.   After the current Q4 2017 quarter, the company aims to be cash-flow positive on a consolidated basis, including corporate overhead, and will then be able to reap the benefits of the cash-flow producing business they’ve built.   This past summer, $FH guided to $ 60MM in 2018 revenues from the Wellness (XpresSpa) Segment, which I am guessing will prove to be conservative.  They have some debt ($6.5MM) due in 2019 which they’ll likely look to re-finance after they complete the disposition of Group Mobile, and they’ll they have some preferred stock to deal with a few years later, although management has been completely confident in their ability to refinance or pay down these obligations in the numerous discussions I’ve had with them.

So why am I writing about $FH tonight?  Well, today, the message board pump crew took hold of my core holding and started pumping it as a crypto play.  I’m writing this post for one reason, and one reason only – it’s right in the title of the post:  you don’t need crypto or blockchain to make a case for $FH at current prices – that stuff is just gravy.  Icing on the cake.

Today the story related to a variety of items:

  1. $FH owns a 10% stake in Infomedia, who, last month,  signed a partnership with mobile payments processor Bango.  Excitement arose from the combination of Bango’s mobile payments biz and their list of big name platform partners.   From the description in the PR:

    Bango is the standard platform chosen by leading global stores to deliver mobile payments to everyone. As the next billion consumers adopt their first smartphone and look for universal payment methods, Bango will be there to unlock the world of apps, video, music, games and other content that brings those smartphones to life. Global stores plugging into the Bango Platform include Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), Samsung (005930: Korea SE) and Microsoft (NASDAQ: MSFT). Bango also partners with leading payment providers around the world to drive new users and revenues through its industry-leading mobile payment solutions. For more information, visit”

  2. Ken Lang – remember the guy I mentioned above who was behind the patent that was at the core of the legacy $VRNG business?   Take a look at his LinkedIn page:


I talked to two people associated with $FH today who said that Ken Lang was a first-adopter of Bitcoin and blockchain technology.   They both mentioned to me that he had, years ago (2013!?) given them token amounts of bitcoin which are now worth multiple thousands of dollars, but that they’d of course forgotten their passwords to access their crypto-wallets.  So aside from Ken Lang being one of the core elements of the legacy $VRNG business behind $FH, how does he relate?  That brings us to:

3) An old $VRNG (now $FH) SEC filing describing a joint venture the company formed with Lang as he left the $VRNG board of directors (emphasis mine):

“Vringo, Inc. (NASDAQ: VRNG), a company engaged in the innovation, development and monetization of intellectual property, today announced that Andrew “Ken” Lang and Vringo will form a new company as a Vringo subsidiary.  “The intention of this new venture is to develop and commercialize innovative technologies in the mobile, security, digital currency, and trusted computing and communication infrastructure spaces,” said Andrew Lang, Head of Technology.”

and importantly (emphasis mine):

Vringo will retain a 51% ownership in the new venture and Mr. Lang will remain at Vringo in the capacity of Head of Technology. Mr. Lang resigns from the board of directors effective June 22, 2015 and has agreed to a significant reduction in salary, effective immediately. In addition, members of management have volunteered to defer vesting of restricted stock units to a later date in 2016.  Andrew Perlman, Chief Executive Officer of Vringo, said, “We are excited to partner with Ken on this new venture. It is directly in line with our goal to build shareholder value through partnerships to develop technology.”

The new Form Holdings divested the majority of their patent interests, but it is my understanding that they still retain this joint-venture stake with Ken Lang, and its associated intellectual property.

4) Some traders and analysts found this Ken Lang et all patent ($VRNG/$FH crew: Jason Charkow ($FH chief counsel), David Cohen (former $VRNG counsel) regarding some sort of mobile communications stuff.   I am not going to pretend that I have any idea what this patent is about.  I have no clue.  If you want to know how much I know about technology patents or the patent litigation process, all you have to do is read my old VRNG blog posts where I amply profess my own ignorance.   I have no idea if it’s related to potential blockchain applications, mobile crypto currency trading, or crypto wallets, or if it’s related to nothing of the sort.  I do know that Ken Lang was and remains a bitcoin/blockchain early adopter who tried, even years ago, to get his friends and colleagues interested in the space.


So what are these 4 numbered items above worth?  I have no idea.  None.  No clue.  I can tell you, though that my point here is that even if they’re worth ZERO, the underlying $FH (XS) business is reaching a turning point where it’s about to lead the consolidated company to positive cash flow.   In a world where companies quintuple in market cap because they announced that they’re in preliminary discussion to explore blockchain related activities, skyrocket because they add “blockchain” to their name, or tack on tens of millions of dollars in market cap because they’ve bought a few million dollars worth of bitcoin mining equipment, I consider all of these items to be icing on the cake – gravy – a free ride on the crypto mania.

I wrote this post because I often see comments mocking $FH for their abrupt shift from monetizing intellectual property to mastering the airport massage business.  I have sat down face to face with $FH’s CEO.  I have talked to him at length on the phone.  I think he is sharp as a tack and knows the new business inside out.  Although $VRNG was unkind to investors in the past, I believe that $FH management is doing everything they can to put the pieces in place for the company and the stock to create legitimate value for shareholders, with or without crypto gravy.  Do your own due diligence.  Read the company’s SEC filings.  Read their investor presentation.

Link to $FH Q3 2017 Investor Presentation


1: I owned $VRNG in the patent days, took a loss after the $GOOG patent lawsuit loss, and bought back in after they settled with ZTE and cleaned up their cap structure.  I sold my shares for a nice gain on the 2016 run-up, and bought back in as the stock came down on the subsequent sell-off which has been relentless since.

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Let’s Talk About Arbitrage – Bitcoin Futures Edition

Par kid dynamite

Let’s get one thing straight right off the bat: this is not a post where I’m going to debate the merits of Bitcoin or discuss it in the comments.  Take your zealotry elsewhere.  I want to talk about the effect that the launch of Bitcoin futures trading may have on Bitcoin.

In case you missed it, the CME announced the imminent launch of Bitcoin futures. The cliff notes are:

  1. Each contract will represent 5 Bitcoin
  2. The contracts will be cash settled to the BRR (Bitcoin Reference Rate)
  3.  The CME will also publish the BRTI (Bitcoin Real Time Index)

Now, I’ve written a few posts about arbitrage before, in the case of the S&P 500 and also in a closed end silver fund, $PSLV – I would suggest checking out those posts if you’re looking for some arbitrage background.  I am not an expert in Bitcoin, but I am pretty well versed in the concept of arbitrage, which is a constant across asset classes.

First of all, the fact that the BTC Future is cash settled does not mean that it doesn’t affect the price of the underlying, in this case: Bitcoin.  In order for supply and demand imbalances in BTC-F to impact BTC, all we need is a mechanism to arbitrage the two products.   The easier that mechanism is, the easier the arbitrage is to perform, and the less we should expect the futures to trade out of whack with the spot (BTC).  In the S&P 500, for example, the futures settle to the opening print for all the index components on the 3rd Friday of the month.  It’s easy for any legit trading desk to “achieve” this settlement price, so it’s easy for said desks to trade dislocations between the value of the ES futures and the underlying S&P 500 index.  Again, for more on this, see the whole post I wrote years ago.

So how easy will it be to trade the Bitcoin settlement price?  the CME link above tells us about the BRR – the Bitcoin Reference Rate – which determines the futures settlement value:


CME’s partner, Crypto Facilities, gives us some more detail about the input exchanges:


To summarize, the BRR will be calculated by taking all of the trades on 4 different exchanges (Bitstamp, GDAX, itBit and Kraken), calculating the VWAP (volume weighted average price) for 12 separate 5 minute periods, and then taking the arithmetic average of those 12 VWAPs.  Now, that doesn’t sound at all trivial to me to replicate for an arbitrageur, but note that CryptoFacilities explicitly claims that the calculation is geared toward “real-time replicability in underlying spot markets,” so they clearly think that sophisticated traders will be able to replicate this benchmark.

Now how does trading of BTC-F (futures) impact BTC?  Let’s assume that the BRTI (their Bitcoin Index) accurately represents the price of Bitcoin.  When the price of the future (BTC-F) exceeds (ie: trades rich) its fair value (for simplicity, let’s just say the fair value is the BRTI, although we’d need to make some adjustments for the time value of money based on the margin required, and if we want to get real philosophical about it, we might have to adjust for any possible forks during the duration of the contract – but let’s not get ahead of ourselves), arbitrageurs will want so sell the BTC-F and buy the underlying BTC.  Excess demand for BTC-F translates into demand for BTC.   The arbitrageur can do this easily, I presume – she doesn’t have to trade the Bitcoin at the underlying BRR: that’s not something the arbitrageur worries about until settlement, and who knows – she might have traded out of her position by then due to arbitrage in the opposite direction.

Are you with me so far?  So excess demand for BTC-F has a mechanism to clearly flow through to underlying BTC.  How about excess supply of BTC-F?  If everyone wants to sell BTC-F, and the futures trade cheap to their fair value, the arbitrageur will need to buy the futures and sell BTC.  This might not be quite so easy: if the arbitrageur is already long BTC, she can sell the BTC that she is long, but is there a robust market for shorting BTC with the kind of size and security an arbitrageur would need to execute?   I am told that there are ways to short BTC on some exchanges, but I don’t think this shorting methodology is robust yet.   If the arbitrageur cannot easily sell or short BTC to hedge her futures position, she will be less willing to readily step in and “correct” the situation where BTC-F is trading cheap – where there is an excess of BTC-F sellers.   Thus, it seems likely that the arbitrage is more readily executable in one direction: to correct “rich” BTC-F futures – which means that excess demand for BTC-F will translate into upward BTC pressure more readily than excess supply of BTC-F would translate into downward BTC pressure.

Now, what happens if the arbitrageur doesn’t have the opportunity to trade out of her position?  In order for the “arbitrage profit” to be realized while minimizing execution risk, the arbitrageur will need to trade out of her position at the BRR (Bitcoin Reference Rate – see above) on the day of expiration:  trading on 4 exchanges, over a period of time, at what seems to me like a difficult-to-replicate average, but what the index providers say is an average designed to be replicated.   I guess that remains to be seen.  The harder the index is to replicate with real trading, the more “slippage” risk the arbitrageur has, and the more dislocation from fair value the arbitrageur will demand to initiate the trade in the first place.

As soon as it was announced that the CME would begin trading Bitcoin futures, you saw the usual suspects lament that this would give The Government / The Cartel / The Illuminati the ability to suppress Bitcoin prices.   Reality, I am guessing, will prove to be the opposite.   If an evil cartel wished to sell BTC-F relentlessly with no regard for profit, either the futures would trade cheap to fair value, or at some point arbitrageurs would step in and try to right the mispricing (putting pressure on the underlying BTC): I am guessing that many arbs are already long BTC currently, and if the price is right they could buy the futures and sell their BTC.  So could this crush the price of Bitcoin?  Maybe, temporarily, until expiration – then what happens?   Either 1) the evil cartel buys back their short BTC futures, in which case the arbitrageur will now be in position to sell BTC-F and buy BTC, reversing the initial downward price impact, or 2) the evil cartel lets his manipulative short futures expire: now the arbitrageur is left with a short BTC position which she would try to buy back at the BRR where her futures settle  – and the (initial downward) price impact is still reversed.

My guess would be that, just as $GLD enabled the masses to easily get gold exposure, which flowed through to the underlying price of gold and was a massive positive force for the gold market, synthetic BTC derivatives like BTC-F will, at least initially, result in speculators seeking long exposure from the product, which will result eventually in demand flowing through to the underlying BTC, via the mechanism I explained above.

So You Want To Understand Index Arbitrage

Misinterpreting PSLV’s Premium

Bitcoin Futures FAQ



As of November 1, 2017 the estimate of initial margin that CME Clearing would require is 25-30%, though this is subject to change

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WYNN Q3 2017 Conference Call Tidbits

Par kid dynamite

Last night’s $WYNN earnings call had enough words of wisdom from Steve Wynn that I figured it warranted a post.  All excerpts are from the Seeking Alpha transcript.

I thought this part, where Steve Wynn describes his plan for the midway at the new boardwalk/lake development was pretty crazy, but the detail in Wynn’s plan is fascinating:

And then there are a number of other things that we call in “midway”. We have decided to take the theme of carnival and turn it on its edge and make a series of attractions and interactive experiences that in some ways have their roots in what all of us grew up with carnivals, but are not really that, they’re far more.

For example, the notion of bumper cars, remember that when you were a kid. Imagine that there are a whole lineup of bumper cars like in a pit in the Indianapolis. You get into the bumper car, but the entire skin is LED lights that are controlled by a system that is linked through contact with the car. So that — and then we have this rally every 10 or 15 minutes. And you go around and around in these cars and if you touch another car it triggers an enormous audio response and an electrical response. So all of these cars are flashing and exploding in color and making crash and explosive noises.

Now you go around this oval, and if you win, you get a price. But there are three Keystone Cups that have their bumper cars, which are dressed up like police cars with flashing red lights and they are in costume. And if you get in the lead, they smash into you and cause tremendous crashes. So in order to win the rally, you have to overcome our policemen and our traffic cops. Anyway, it’s bedlam in audio visual interaction. Now I give you that one example and there are a number of others. Because it’s the notion of carnival, but also we’ve taken the word carnival and we have put an E on the end as they do in Rio de Janeiro and its Carnivale sort of high [saluting] way of saying that.

This next part was Pure Steve Wynn – quoting elevation levels to the foot and how it jives with his vision – he knows, literally, every square inch of his property:

After we move these trees and the earth — the site Las Vegas is the whole valley here slopes from west to east downhill 1 foot per 100. So the strip is a 2,075 the Paradise Road is 2,045. You can’t see a 1% drop, but its 30 feet down across the length of our golf course. You could see it if you go to Bellagio, you come into the backdoor of Bellagio on grade, but if you go to the nightclub they call Hyde, you can look down on the water and you could see that the strip is lower. So we had to pick a level that where we wouldn’t have to bring in thousands of truckloads of dirt or take out thousands of truckloads of dirt which would then add to a lot of costs.

And the water level is at elevation 2,060, the boardwalk is at 2,062. Wynn the hotel and Encore are at 2,086 because we have back of the house below the casino. So you’ll be looking down on the boardwalk about 20 feet and that allows us to have boardwalk buildings that are below the casino level and below the hotel level. And I think that’s probably enough information for now. It maybe was more than you wanted.

On capital investment:

It shows that we never — you know in our business sort of like the theme park business, if you’re not growing you’re shrinking. If you’re not getting better you’re slipping. It’s a capital intensive business, but what’s wonderful about our business is those capital investments are well rewarded. For example, this year we closed after the final four last year in March. The next morning we closed the whole north end of the casino where the race sports book were located and our delicatessen Zoozacrackers.

We closed it off spent $11 million and then opened it up the day of the exhibition games in August. New screens of the most advanced kind, a brand new restaurant called Charlie’s, new bar, new everything, brightened and opened the whole north end of this casino for $11 million. Well we’ve now assessed it for several months. It looks like we’re going to increase our EBITDA by 5 million. Now when we keep a couple of billion dollars in the bank, we can make 2% maybe, but when we can invest in our own business and have a return of 40%-50% actually double digit returns there’s no comparable use of our money.

We have a dividend program, but the same thing happened when we moved poker over to Encore and turned Botero into Jardin. There we invested 5 million and we made an extra 1.5 million in EBITDA. So like The Sands, in this case they’re doing it on a rather larger scale. We invest in our own business continually to give our guests a better experience and it’s a good investment.

on comps:

We changed the criteria from average bet and linked the play in all those traditional metrics that casino marketing people for decades have — half a century have run hotels and we went to EBITDA per foot with a cold blooded attitude that promotional allowances would only be issued on current play, not on what you did last trip or the trip before, but what was your activity now. And we told our customers, look, if you want to say you will be treated like a prince, just give us your credit card. We treat everybody that way. But if you expect to get free room, free food or any of those things, we’re just a business and it’s based upon if you gamble at a level that’s acceptable well then of course we won’t charge you for your dinner or your hotel room. But if you don’t, don’t expect us to give it away free.

Now that’s a soft way of putting it, but I assure you that the applications hurt as hard as a diamond. We don’t comp people that don’t play, period. And therefore, our margin on table games, which historically has been below 20 in this city, it’s 50. We had the same margin with table games virtually now as you do with slot machines and our rooms. So maybe we have a little less business, but we sent a lot of non-productive customers over to our neighbors. And because we love our customers, we send them over to our neighbor in a Rolls Royce.

on security:

I know what we did here because as one of my competitors described it, Wynn is paranoid and two years ago between Thanksgiving and Christmas we had a series of repeated consultations with consultants including Greg Kelly from New York, the people from SEAL Team, from the development group, SEAL Team 6 as they are known to some people, a lot of people came. We beat the bushes to find out everything that was — that we could throw at this problem to harden this as a target. With the idea that someone was looking at the hotel, they would see that we had meet the threat level on a number of ways and they’d move on someplace else, because this would be a tough place to survive from more than 3 minutes if you had a gun on you.

on the Vegas shooter:

Now having said that, we knew this particular fellow that did the shooting at Mandalay, he has been a customer here since ’06, first started coming, we first picked him up on our records as a typical slot player with a modest credit limit of $50,000. And I got to interview — and in the last three years been coming frequently with this lady companion of his and I interviewed — I had a chance to interview the people in the high limit slot area, he plays video poker, he did. At a $20,000, $30,000 level and he never owed a dime. He had a $50,000 credit card. He doesn’t owe a dime in Las Vegas. He played Mandalay and Caesars and here. He was a winner at Mandalay. He was a loser over the six or seven or eight years here.

But he never owed any money. He didn’t meet the profile of a problem gambler or any like that. He was a very controlled person. And he and his lady ate dinner and played the poker with the slot machines in a high limit room before in the afternoon and they went to dinner tipped very well, went — played after dinner, went to bed. They were served by people in this organization over a period of years and can only be described as the most vanilla, unexciting, totally typical couple that has ever walked in this building. When I interviewed the employees that knew them, they were stunned, mystified, that the person they knew could have been a person that tried to assassinate hundreds and thousands of people and succeeded in killing 58 of them. My employees were stunned.

more on security:

We had a program for training our employees for two years; room service, housekeeping, audio-visual people that go and fix the TV or touch screen. They’ve all been trained for two years. They inspect the rooms, they look at the people. We profile everybody. We sniff the baggage in the baggage room. We don’t interfere with people that have pull-along luggage when they come in, we just watch them and look at them and think about them. And if there is anything about them that meets our various criteria, they’re immediately tagged and followed and observed. We have a whole routine that we do here that’s transparent as far as a guest is concerned but highly articulated on our side. Now if you’re a bad guy and you were looking at the vulnerability of this hotel, you’d probably spot a lot of the things that we’re doing. And that’s okay with us. It’s all right if they see what we’re doing in part. Maybe that’s a good thing. But we don’t flaunt it, it’s just there.

related: prior WYNN recaps

no positions in $WYNN or $LVS


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Healthcare Will be Screwed Until We Stop Accepting Excuses

Par kid dynamite

Regular readers will know that writing about my interactions with our healthcare system has been an obsession of mine.

I do not profess to be an expert on the legal machinations of the system – of the details of the regulations that end up screwing things up for the consumer.   What I am, however, is an expert *user* of the system, as someone who has purchased his own healthcare plan (ie: “individual” plan – even though it’s for my wife and me – as opposed to “employer” plan) for the past 7 years.   I have watched both deductibles and premiums skyrocket, and it’s starting to come to a head as consumers finally start to actually bear the costs of medical care: they see how screwed up the system is.

My current obsession is “balance billing.”  Balance billing is a national story that’s being addressed by legislation in individual states.   The cliff notes are:  when you go to an IN NETWORK provider, as designated by your insurance company, you can be hit with OUT OF NETWORK provider bills which – and this is the key part – you have no control over.

For example, I had a radiology procedure done at an in-network facility.   They then sent it to an out-of-network radiologist to do the reading, and I got an out-of-network bill.  Nope.  Not happening.  Until you give me the ability to choose my radiologist (which is one solution, although perhaps a terrible solution, as it puts a ridiculous burden on the consumer) there is absolutely no way I am paying this bill.  I called the facility, they denied responsibility, I called Anthem, and Anthem took care of it, telling me they’d make a one time adjustment.  I, of course, replied, by telling them that I would not accept their one-time  limitation, and that I would fight it every time I got screwed by such bills beyond my control.

There are ample stories you can find with a simple online search of much more serious issues:  consumers get whacked for out-of-network emergency care (New Hampshire, where I live, has passed legislation to indemnify the consumer for emergency care with respect to in/out of network),  hospital patients get hit with out of network bills from doctors who come by to check on them during rounds, and the classic case: out of network bills from anesthesiologists.

I have a friend who is a member of the NH House of Representatives.  With the help of the NH Insurance Department, who I have spoken with at length, my Representative friend put forth a bill proposing to end “balance billing” – the bill would prevent providers who contract with a given facility from billing the patient for amounts beyond what insurance would cover for in-network care.     In other words, if I go to Concord Hospital, an in-network facility in my current plan, it will be up to the hospital and its providers to negotiate their contract such that the providers can’t just say “oh, we’re not in-network, you owe us $X.”

I honestly don’t even know how to argue the “fairness” or “rightness” of this concept – it’s blatantly obvious to anyone who has actually experienced it, and it has nothing to do with “capitalism” or “free markets,” which are concepts that the Chairman of the committee that squashed the bill enunciated.  If I cannot choose my anesthesiologist, how can I be expected to pay for her when the facility – who is benefiting from its own in-network status – fails to arrange for one within the network?

Now, at the initial bill hearing (6 months ago), the members of the NH Insurance Department clearly enunciated the issue, and I testified with personal stories which emphasized the problem:  the consumer cannot be held responsible for bills which he has no control over.   I watched as heads of the Pathology Union, the Anesthesiology Union, and the Radiology Union (these are the Big Three of Balance Billing) stood up in succession and said things like “I have to put food on the table for my kids,”  as I sat there with my mouth agape that the NH House of Representatives Commerce Committee was actually accepting that excuse.   The result of the hearing was that “everyone agreed something needed to be done,” but that they needed more work on the issue.  It was remanded to a study session, which I attended last week.

I went to this session, which was attended by:

  • NH House of Reps Commerce Committee Members
  • 2 reps from the NH Dept of Insurance
  • Anthem’s lobbyist
  • Tuft’s Healthcare’s lobbyist
  • Harvard Pilgrim’s lobbyist
  • head of the Hospital union
  • me

The Big Three of Balance Billing Unions were conspicuously absent.   I went into the hearing thinking that the problem was somewhere with the insurance companies – they’re easy targets for our consumer hatered.   After the hearing, however, and after talking at length with both Harvard Pilgrim and Anthem’s lobbyists, it’s clear to me that the problem lies with the hospitals.  Let me explain.

As I noted above, the hospitals get the benefit of patients choosing to have procedures done at their facilities because the hospitals are listed as in-network.   The hospitals also choose where they send their radiology and pathology work to be read, and who they hire for anesthesia.   Thus, it is painfully obvious that the hospital is the one who should be responsible for arranging in-network providers.   Amazingly, at the initial hearing on the bill earlier this year, a doctor on the Committee asked me: “Why should I be responsible for ensuring that the provider is in-network?”   I replied instantly: “BECAUSE  YOU CAN!  I have no ability to do that if I’m not even choosing my provider!  I choose YOU – the doctor – to do my procedure.   I do it at an in-network hospital.  I literally can do no more.”

So the format of this work session is that members of the Commerce Committee, sitting at a big U-shaped table, raise there hands to be acknowledged by the Chairman, and then make their case, or ask questions to the members of the “audience,” which included me and the lobbyists.    The Insurance Department members enunciated the problem so clearly that I didn’t feel the need to even raise my hand and add anything, until 40 minutes into the meeting when the former Chair of the Committee suggested that more regulation only screws things up – that Free Markets will solve the problem.

I raised my hand and calmly pointed out that although I, too, am a huge fan of free markets, the concept is mis-applied when dealing with the healthcare system, as we have nothing resembling a free market in healthcare.  It’s heavily regulated (many of you may not know that individual purchasers cannot buy the same plans that employers can offer their employees!??), and the consumer’s choices and the coverage abilities of insurers are nowhere near free.

The former Chair asked me if I would want the ability to, ahead of time, know that the providers assigned to my procedure would be out-of-network.  Of course – again – at a bare minimum that is what should be required, even if it’s a crappy solution: is the patient supposed to re-schedule his procedure because the hospital says “oh by the way we’ve scheduled you with an out-of-network radiologist?”

The Chair then turned to the head of the Hospital Union and asked her why they can’t tell do that.  She said, I kid you not, “We don’t have the ability to tell ahead of time.”   Now, I simply blurted out: WHY NOT? We have computers.  We have databases.  It would probably take me less than half a day to build you an Excel Spreadsheet that could get you that information.

And the light bulb went off in my head: the problem is the hospitals: not only do they not care, they’re not even incentivized to fix the problem:  they’ve gotten me to come to their facility, and dispute over the anesthesia bill will be between me, the anesthesiologist, and my insurance company – so the hospital is either indifferent, or Dis-incentivized from getting involved!  After all, if the result of this whole shebang is that the hospitals who cannot guarantee in-network service providers lose their own in-network status, the hospitals will be much worse off!  They just want to preserve the status quo.

I spoke up to tell another story – we dealt with a planned surgical procedure earlier this year which required a multi-night hospital stay.   I was concerned, as I always am, with out-of-network billing possibilities.  Anthem sends me letters ahead of time telling me, the consumer, to ask the hospital for in-network “facility based providers” – hospital-speak for pathologists, radiologists and anesthesiologists.  Guess what happened when I made this request to everyone I came in contact with in the hospital intake process:  they stared at me like I had 3 heads.   “You have no idea what I’m talking about, do you?”  I asked.  nope.  “Am I the first person to ever ask this question?”  yep.

Anyway, the bottom line for me was that the hospital had the ability to rectify these bad-billing situations if they wanted to.  Beth Israel Hospital in Boston did a tremendous job handling the billing for the complicated surgical procedure we had planned. Concord Hospital in New Hampshire claims they can’t send radiology to an in-network radiologist, even though the adjacent imaging center within their own computer network which charges 25% of Concord Hospital’s fees manages to do it without incident.   After listening to the Hospital Union head make nonsense excuses, it finally clicked for me.

This post was inspired by a Bloomberg article today about drug reimbursements.  Having not taken a lot of prescription drugs, I am still a noob when it comes to navigating this branch of the healthcare system, but I was surprised last week when I filled a prescription where the rate that my insurance had negotiated was higher than the rate the grocery store would have charged me if I was a part of their $7/year discount plan.

Here are the cliff notes for the Bloomberg article:  when you pay for a prescription, your insurance company (or Pharmacy Benefit Manager) may get a rebate on the drug, even if you pay for the drug yourself because you haven’t met your deductible.   This is obviously mind-boggling to any pragmatist.  Why does the PBM negotiate a rate and a reimbursement?  Why isn’t the “rate” just the net of the rate paid and the reimbursement?   From the article:

“Robyn Curtis, a staff adviser at the University of Southern Mississippi in Hattiesburg, has a 13-year-old daughter with diabetes. Each month, the girl’s insulin pump requires three vials of NovoLog-brand insulin, which cost $890 under her plan, Curtis says. Her daughter’s insurance has a $2,600 deductible.

So Curtis was beside herself when she learned that NovoLog offers rebates — almost always paid to insurance companies and drug-benefit managers, not patients — that might have cut the out-of-pocket cost in half earlier this year.”

So the consumer pays the $890, and then the insurance company gets a rebate check for half that amount.  (!!!!???!!!)

Why does this consumer have to pay $890 and then watch her insurance company get a $450 rebate?  Why isn’t the rate up-front just $890 – $450?    In the beginning of this post I told  you that I wasn’t an expert on the legal nonsense behind the scenes.  I am, however, qualified to tell you that this is screwed up.

The end of the Bloomberg article, however, is what inspired this post, as it enunciated the same nonsense-excuse of the type I heard from the Hospital Union head at the balance billing session I attended, emphasis mine:

But why not break up the rebate checks and send the cash back to the patients who paid for the drugs? Representatives of corporate health plans say it would be impractical to do so because they get the money months after employees bought the drugs.

Says Laurel Pickering, chief executive of the Northeast Business Group on Health, a coalition of large employers: “It would be very difficult to figure out how to administer that.”

To that I have one response:  BULLLLLLLLSHIT.   The insurance company and Pharmacy Benefit Manager know exactly who bought which drugs.   They know exactly how much rebate they get for each drug.  They have the ability to send the rebates to the consumers who deserve them*.   Instead, though, they have set up a system which is deliberately obfuscatory for one reason: to screw the consumer.  Now that consumers are dealing with higher deductibles, these absurdities are starting to come to light.

This long, rambling post intended to illustrate a simple concept:  there are powerful lobbies within the healthcare system which are making nonsense excuses to maintain the status quo and screw consumers.    Until we stop accepting these excuses, nothing will change.


*Note:  CVS/ESRX seems to do it right? From the article:

“CVS Health Corp., which administers drug plans for employers and insurers, gives “the vast majority of rebates” back to those clients, said spokeswoman Christine Cramer. Express Scripts Holding Co., which plays the same role, said it returns about 90 percent of rebates to its customers, generally keeping about 10 percent as its compensation.”


postscript:  Multiple parties in the balance billing hearing mentioned that anesthesiologists are often scheduled with little advance notice.   Fine – still not my problem as a consumer.  It’s up to the facility to negotiate with its providers to accept standard rates.   While the anesthesia union will claim that caps on rates will result in fewer providers willing to provide service, it ignores the other side of the economical reality:  an anesthesiologist without a facility cannot practice….  The facility (hospital) has the ability and leverage to negotiate in this situation, where the consumer has none.


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No Surrender

Par kid dynamite

I’m a Bruce Springsteen fan.

The previous sentence is a major understatement.

So it’s with outright awe that I watched this video of Springsteen’s 9/9/2016 Philadelphia show, where he pulled a kid out of the audience to crush No Surrender with him.     A little background: there’s a part during The Boss’s concerts where he goes around and plucks signs out of the audience for song requests.  On this night,  this guy, Matthew Aucoin, had made a sign that said “Can a college kid play No Surrender with you?”  and he included some notes on his sign about guitar capo placement and chords.   I guess Bruce was convinced, because here’s what happened:

Springsteen took a risk, but he quickly realized that the kid was legit, and traded lyrics and guitar licks with him.   Matt even improvised “Philly” into the lyrics in the last verse.  Impressive.  Then, he comes back onstage to take a selfie with The Boss.

Now, people will say this was “rigged” or “rehearsed.”   Who knows.  I have been to enough Boss shows to believe it was spontaneous.

Amazing.  Here’s another video with the part where Bruce grabs the sign:


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Fractal Market Behavior: Silver Edition

Par kid dynamite

I’ve written before about the importance of using different time frames to get different perspectives when you’re looking at a market chart.  My default chart is a 4 hour chart with 1 minute bars, which I  then toggle to a 1 day chart, 2 day chart, and then longer.

The impetus for this post was the recent price action in silver.  I’m using silver futures here, SI_F, and I found something interesting as I toggled through my different time frames:  they all looked the same!

Now, one of the great flaws of the human mind is its ability to see patterns where none exist.  I didn’t run R-squareds on these correlations, but I am confident that they do exhibit some sort of intriguing fractal price action.  Take a look;

Here’s the 4 hour chart, taken just before the close today (Friday, July 1st 2016)

Silver, 4 hour chart 7.1.16

Silver, 4 hour chart 7.1.16

The 1 day chart:

silver, 1 day chart 07.01.16

silver, 1 day chart 07.01.16

The 2 day chart:

silver, 2 day, 07.01.16

silver, 2 day, 07.01.16

The 1 week chart:

silver, 1 week, 07.01.16

silver, 1 week, 07.01.16

The 2 week chart:

silver, 2 week, 07.01.16

silver, 2 week, 07.01.16

The 1 month chart:

silver, 1 month, 07.01.16

silver, 1 month, 07.01.16

It’s not until you get to the 2 month chart that you start to lose that “pattern.”

silver, 2 month, 07.01.16

silver, 2 month, 07.01.16

Interesting, right?  So what does it mean?  Well, at its simplest level, it paints a clear picture of consistent and relentless paper manipulation of silver prices demand for silver (futures) over a variety of time frames.

related:  Gold, Platinum and Miners: Oh My


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