2021.07.04

Mass Effect Legendary Edition Mako jump

Big moves this week for the two tickers I've been following most closely. First, some (dark) giggles about a company I don't go near in any sense:

Reddit TimeRemove ankermouse11 baby thunderdome Peloton humor
Peloton: the fitness choice for the 'childfree' crowd.

And a PSA on crypto:

/u/doodoofart69420urmom: How does bitcoin mining work exactly?

/u/RockleyBob: "Imagine if keeping your car idling 24/7 produced solved sudokus you could trade for heroin."

/u/Script_: Not idling, more like at full gas
SPCE

CNBC SPCE Virgin Galactic launch announcement after hours

Fresh off the upward movement for SPCE following their FAA approval, Virgin Galactic announced that Richard Branson would fly on July 11.

This seems like a fun event to invest in, like if I could have bought puts on Apollo 11 and calls on Apollo 13. I'm optimistic about the company, in general, and the next week should at least offer considerable volatility for stonks I already want to own. Barring a delay, there are two possible outcomes:

Success

SPCE Virgin Galactic hypothetical success scenario spacewalk kind of
Unartistic depiction of the hypothetical success scenario wherein Richard Branson plants a US/UK flag in space.

Since the market didn't seem to price in the flight when Virgin obtained FAA approval, I'm guessing a success isn't priced in either. For this I have shares and covered calls that expire Friday (before the launch).

Pleas fly again

SPCE Virgin Galactic hypothetical failure crash Richard Branson Planet of the Apes
Unartistic depiction of the hypothetical failure scenario wherein Richard Branson tastefully lands in the water.

If the flight doesn't go so well, I have cheap $26 puts that are already up 200%, brought to you by the letters I and V. Theta will bring them back to Earth, and I should probably hold them until the 12th.

Looking past the 11th

Charles Schwab SPCE Virgin Galactic poor rating
Via Kevin, I guess Chuck isn't so hot on SPCE.

The flight announcement took some of the news cycle away from Surfside. Recalling my previous statement, "it seems like SpaceX offers an astronaut experience and Virgin offers a guided tour of space. Different experiences, different capacity, different price points." NPR analysts predicted a $300k-ish price tag for Virgin Galactic compared to a $600k-ish sticker price for Blue Origin, naturally neither of these numbers is official.
RIDE

LMC Lordstown Motors WSJ article DOJ probe

Apparently the Lordstown preorder debacle "that is something everyone does" was picked up by the DOJ, graduating from "short seller FUD" to an actual legal liability.

CNBC LMC RIDE Lordstown Motors investigation trading halt ticker circuit breaker

The LMC share price quickly hit a circuit breaker and I happily cashed in my $10 puts that had doubled in value. I still have $7.50s expiring in September that I expect will print when and if LMC announces a production delay.

Being smug about small investments is one thing, but the real payoff has been observing the - what's the opposite of fear/uncertainty/doubt? Let's go with assuredness/security/self-delusion. Yes, the most entertaining developments have been the ASS from the LMC marketers and bagholders.

The Lordstown sub responds

There was the usual repetition of the ASS playbook:

Reddit Lordstown Motors SEC investigation astroturfing fanboyism

... and some very curious legal opinions:

Lordstown Motors SEC investigation resignation

... and some borderline clown world nonsense (or just failure to understand that the news isn't instantaneous):


/u/PuzzleheadedList6307
How the hell do they HALT buyign and selling before any news is out? Must be how the free market works

Lordstown Motors LMC RIDE meme Reddit King of the Hill

For some, it seems like they're just focused on the promise of a September (some say 1st, some say 30th) production start. Indeed, there isn't much propaganda left to push now that Lordstown Week came and went, "demonstrating that they truck is legit while shockingly not getting much praise from the biased media". For others, this was the last straw.


/u/SamSeg_3
FYI y'all. There's a difference between FUD and being out of money, having your executives quit, and having the DOJ sending you subpoenas.

I'm out. Sucking up my losses and moving quite literally anywhere else.

"Funding secured" has been a mantra around the LMC community, based ostensibly on claims that the company is "close to a deal". While I'd reiterate that a qualified comment like that means about as much as "we want our brake performance to be among the leaders", having pending litigation isn't a great look. Then again, any investor that believes in the technology might just see the inquiry as a negotiation chip.

More DD

Lordstown Motors week Elaphe hub motors assembly line

Lawsuits, management, and factory status notwithstanding, my primary concern for the fate of the Endurance has been the viability of the hub motors. I like to believe that technology can win out over any business obstacle.

I guess Elaphe built a few thousand hub motors for LMC and then shipped the manufacturing equipment to Ohio for future production. From what I've read, LMC is the sole US licensee of the Elaphe L1500 hub motor that has been apparently fitted to a commercial SUV and an Audi R8 for very limited demo purposes.

So the question of viability perhaps falls less on LMC's shoulders and more on the 75-employee Slovenian company.

I found an article that appeared to provide regurgitated marketing information:

Approving a bearing for the L1500 requires a measure of special attention. Loads coming from the road apply significant forces particularly bending moments on the bearing, which lead to minor elastic deformations while the motor is operating.

For broader and closer accuracy of how the bearing will behave over its lifetime, Elaphe then conducts experiments using the Wheel Accelerated Life Test machine (WALT) at the Fraunhofer LBF Institute for Structural Durability and System Reliability in Darmstadt, Germany, with additional similar tests locally on dedicated deflection measurement benches.

So apparently curbs and potholes made it on Elaphe's radar. That seems wise considering the unsprung weight of their hub motor combined with the constraints placed on tire sidewalls by all the in-wheel stuff.

"A key challenge with in-wheel motors is how to deal with temperature gradients," Gotovac explains. "Our multiphase wave winding helps increase the packing density of copper, which reduces current density across the length of the conductor.

The liquid-cooling circuit constitutes the active cooling of the L1500. The cooling medium is typically a waterglycol 50:50 mix, as commonly used in other traction motors.

So I guess heat dissipation was a consideration as well. Unfortunately, the article provided no specification information that I could find.

Theta gang weighs in

While the LMC discussion has mostly been confined to the LMC sub and the occasional WSB post that is immediately taken down, /r/thetagang provided a substantive discussion on the state of the company on a post that predated this week's news.

(Theta gang is the Reddit term for people who focus on selling options).

OP kicked it off with an effortpost that I have condensed (emphases mine)...


/u/sharknado523
I sell power tools & lifting equipment. I am in and out of different factories in Texas and Louisiana every single week. Trust me when I tell you that having an old factory is not an asset.

I understand that there are pictures of the factory showing lots of shiny new equipment, but the history of the company makes me wonder whether this is a Potemkin Village of sorts. More on this in a bit.

I mentioned before, I'm not a stock analyst. But it's sort of a meme on FinTwit that if the CEO is doing interviews in a sparkly-clean safety vest and hard hat, it's probably a cover for fraud. That's half-joke, half-serious. The reality is that they have been caught misrepresenting that they have orders when in fact they have cancellable pre-orders, which are very different. This isn't just because of the technicality of a prefix. Orders are "accounts receivable" and they are something the company can invoice against in the future. Pre-orders are basically just a fun statistic in a spreadsheet that don't mean much, since they ultimately discount the pre-order amount from your purchase price if they are able to deliver a production vehicle to you.

We all forget how many automotive companies there were 100 years ago. You ever hear of companies like Studebaker? Packard? Tucker? Kaiser-Frazer? Apperson? Auburn? Chalmers? Elcar? Franklin? Midget Motors? I mean the list goes on of companies that tried to be successful making cars but failed because of the barriers to entry.

So, u/sharknado523, if you have so much to say on the topic, you must be balls to the wall short this name, right?

Hell to the naw to the naw naw naw
I really don't like to short things, especially in 2020/2021.

The theta gang sub is better than its peers for discussion, here was part of a response:


/u/SmackEh
So while I agree that an old factory is not ideal for mass producing modern vehicle, I'd counter that the simplicity of the truck (VERY few moving parts) allows the old technology to be leveraged in a clever way (paint, metal stamping, etc.) hasn't changed. They are building a hub motor production line in new over the next few months (building these by hand for now). It's important to note that GM actually invested $300 million in the plant since 2009

I mostly agree with all of your other points, the only other thing I'd like to talk about is how much the media has been relentlessly attacking LMC. Most of this is due to the Hindenburg report, which is proven false. So I'd like to take this opportunity to reiterate that most of that report was complete BS yet NOBODY, not a single media outlet is talking about this... why..

I'm not sure about the "Hindenburg report, which is proven false" bit. Perhaps he is referring to the special committee investigation initiated by the LMC board? Biases aside, the report uses meaningless phrases like, "the projected September 2021 start of production remains achievable" and, "while hub motors have not previously been used at scale in commercially-produced passenger vehicles, the hub motor technology licensed from Elaphe is viable". These statements sound validating but can easily describe a truck that goes into production three years from now and has a top speed of 35 miles per hour. They're just pointing out what they consider possible without even providing as much as what is probable, nor their rationale.

Opacity. Wordplay. Forward-looking statements.

They report does address the truck that caught fire:

The Hindenburg Report described a January 13, 2021 incident in which a prototype of the Endurance caught fire during a test drive. The Special Committee concluded that the incident was an isolated event rather than one reflecting a systemic problem. Lordstown Motors conducted a technical investigation of the incident that identified the root cause of the fire to be non-conforming parts on a battery pack that had been manually reworked for assembly on the prototype.

It'd be neat to connect the dots to the driver's claim that the truck was "driving weird", but that could describe a power connector issue (as well as almost anything else). What's alarming about the above statement is that the conclusion references an LMC report rather than an independent verification.

Returning to the theta gang discussion, there were interesting comments on C-suite wordplay, the new LMC CFO, and the lack of agility of union labor:


/u/rupert1920
> the argument that Ford will beat them to market is false,
> LMC announced yesterday that they have funding and
> (limited) ability to produce at least 20,000 vehicles per
> year and binding orders for at least two years.
> Production remains on track for end of September (2021).

I feel like if the orders are "binding", the president wouldn't have said it this way:

> I don't know the exact facts of the legal aspect of that,
> but they are basically binding orders that are committed
> here in the last two weeks, reconfirmed orders. They're
> pretty solid, and I think that's on the light side or
> conservative side.

If the orders are actually legally binding, he would not have said he's unsure about the legal aspect, nor would anyone say they're "pretty solid". Those sound like someone trying to overstate non-binding orders.

That, alongside the sudden reversal in their financial situation - they were saying they didn't have cash for production before the CEO CFO exodus - really doesn't sound like the truth to me.


/u/bombduck
That entire novel and you didn't even mention the newly promoted CFO is a specialist in big company bankruptcy navigation. Get back in your room and DD more!


/u/FlatBrokeEconomist
I was flabbergasted when I saw people talking about Lordstown freaking Motors like it was anything but a joke. I grew up near Lordstown, my mom worked there in IT in the late 90's early 00's, the place is a freaking joke. It's a union shop, meaning my mom couldn't even get her own printer paper or move her own machines around, she had to put in a request and wait a few hours for someone else to do it.
Fyre and friends

Trump tweet China

It goes on. Perhaps I'm a scamwhore. I did like reading 419 eater way back in the day. But let's move from the midwest to the far east, where from some reading and watching I'm a bit more knowledgeable of the Muddy Waters scandal from a decade ago.

Hindenburg


Fanboys of LMC, NKLA, CLOV and other Hindenburg targets always kneejerk to short seller bias and claim that it somehow invalidates everything they say. This assertion isn't worth a second thought, but it seemed worth checking on older Hindenburg investigations to see how frequently they are on- or off-target. You know, it's something to read when you have a kid on one arm and you want her to learn smart investing.

Since vaporware companies aren't personally all that interesting (too close to home?), I ended up looking at a couple of reports on Chinese companies listed on US exchanges. There seemed to be a recurring theme: transfer investor funds to company leadership. This isn't supposed to be easy. First, you need to attract investors while being enough of a failure that you couldn't have succeeded on your own merit. Then you need to extract that capital in a more savvy way than writing yourself a huge bonus check.

Obtaining investment capital seemed to be simply a matter of cooking the books and making huge promises to US investors who are largely unable to get DD on China-based companies. Hindenburg tracked bogus earnings statements, geographically-impossible campus sizes, and cooked sales numbers accomplished by moving product to a subsidiary and back.

While company leaders may have enriched themselves by selling shares at an inflated price (pump and dump), the more subtle approach involved using investment capital to purchase businesses owned by family members. E.g. I have a US-listed mining company with tons of investor cash because I claim to have revolutionized the pickaxe. I use that money to purchase my brother's pickaxe handle company that he just started last week, since it's good to in-house the manufacturing of handles and their substantial IP. The US investors have no idea and they've probably been told to buy-and-hold, average down, and dollar-cost-average because Charles Schwab said that's the best strategy.

The China Hustle (film)

The China Hustle film poster

Having read the above and enjoyed Enron documentary, I decided to check out another Alex Gibney doc - The China Hustle.

The film follows a few investment bankers who, upon learning of fraud similar to the one described above, turned into conscientious short sellers. Or so they say.

Muddy waters make it easy to catch fish.

This Chinese proverb is the recurring theme for the film wherein the opacity of US-China business relations makes it possible to pull a Theranos with considerably less effort. Per the film, the anatomy of the hustle is this:
  1. A Chinese business owner is approached by *someone* who claims they can provide significant capital to grow their company. Who would say no to this?
  2. The company gets listed on US exchanges through a reverse merger; a US shell company (registered entity with no business) merges with the Chinese company. This step is used to bypass the hurdles required to get listed on US exchanges via IPO. (Ed: It's a yet another chapter in the saga of people exploiting regulatory loopholes, one that's extremely similar to the current SPAC hype.)
  3. US investment banks hype the on-paper growth of the Chinese company. Ratings organizations treat financial disclosures as they would US companies and give the stock high marks. People invest.
  4. If anyone asks questions, the company calls in one of the "Big Four" audit companies (Deloitte, Ernst & Young, KPMG, and PwC) who are basically brand names sold to local franchise offices. They call in lawyers who aren't paid to check the validity of the claims, but give interviews that attempt to redirect the discussion to how short sellers are biased. (Ed: feels very similar to LMC's independent investigation and a common refrain from 2016-2020, "Oh is that not true? Not my fault, someone gave me that.")
  5. The institutionals pull out when they (their algos) think the share price has peaked. Retail investors, mutual funds, ETFs, and pensions are left holding the bag.
One point that isn't explored too deeply was that short sellers obtained (Chinese regulatory) "SAIC filings" and found that the numbers reported domestically were often a tenth of what was claimed in US disclosures. So it leaves me to wonder why short sellers even need to send DD teams to the company facilities if the fraud is in print that - I imagine - isn't too hard to obtain.

Interestingly, the documentary claims that it's illegal to film private companies in China. Setting up cameras to track foot and truck traffic is one of the main due diligence methods employed by the short seller. This feels painfully similar to our own ag-gag laws.

I'm optimistic that the market has largely wised up to this scam and that it peaked in the early twenty-teens. That said, Hindenburg looked at YRIV in 2018 when the share price was in the $4 range (down from and ATH of $16). Reality seems to have confirmed their findings as the ticker now trades for $0.06. The film exits with an (O_o) at Alibaba, pardon my emoticon. Indeed, while The China Hustle's antihero Dan David was able to send DD teams to illegally track trucks and employees, the new names in overseas investments measure their trade in users, something that's harder to track than actual revenue. So maybe we're seeing a new hustle with Alibaba, rideshare companies, and online education companies.

Do I trade off this? To quote /u/sharknado523, "Hell to the naw to the naw naw naw". Not only can any ticker "stay irrational longer than you can stay solvent", these ones might even have the backing of an extremely large planned economy.

Well, there is one particularity. The film mentions that retail traders took the biggest hit in the initial round of RTO (reverse takeover) fraud and that estimates for pension fund losses were $14B. I'm inclined to believe my 401k has exposure to this kind of thing. QQQ certainly does. And so I feel a renewed emphasis to DIY my portfolio diversity rather than let institutions wash away these losses behind a wall of opacity and "Well Moody's rated these mortgage-backed securities as investment-grade so it's not on us if they go tits up".

Dollar-cost averaging and buy-and-hold investors are perfect targets for these scams. ETFs and mutual funds. Basically all the things that financial advisors steer retail investors toward. Yeah, the real hustle is making money off of financial illiteracy.

Anyway, The China Hustle is a great watch and goes in my scam/crash movie marathon list with The Big Short, Margin Call, and a few others (none of which are Scorcese films).
RoR2 update/bandit

Risk of Rain 2 ROR2 Bandit salamander vendor blue portal Huntress

Risk of Rain got a free update that included the Bandit. He has crazy-strong attacks and minmaxable critical and bleed abilites but needs leeching seeds and medkits as early as possible.
Intruder

Steam game Intruder guards roof

The Lolbaters squad tried out Intruder, a gameplay-over-graphics original-Counterstrike-like experience. Intruders attempt to steal stuff or hack stuff, guards camp. There are some neat items that emphasize stealth over team wipes.

We may not get a ton of time into this game since it's probably only fun with six or more people.


Steam games Annual Intruders review b8 and switch
I almost accidentally downloaded Annual Intruders.
Dying Light NG+

Dying Light Rais guards arena

The Dying Light new game+ playthrough is pretty fun. The campaign started off pretty rocky, like in the menus. Our games were both set to the DLC playthrough where we last ended it. Starting NG+ isn't possible from this save state. The menu allows you to return to the main campaign, but it's remarkably difficult to trigger an autosave - we'd read that sleeping would do it but this appears to have been patched out (confirmed by the lack of a save icon that appears on the bottom right). Anyway, to start NG+ your save state needs to be on the main game (confirmed by exiting, hitting "Continue" and verifying you're in the slums) and, obviously, you need to have finished the main story.

Dying Light freeway dark sickle bus

Having my hard-earned weps from the last runthrough is nice. It's been awhile since our last playthrough, but if we had rolled directly into another playthrough it might have been tedious to start without the grappling hook.

Dying Light outfit Bill Left 4 Dead
There's a free DLC cosmetic - Bill from Left 4 Dead! It should be said that I would have paid for an Ellis outfit wherein he provides commentary throughout the game, "Did I ever tell you about the time me and my buddy Keith parkoured into a volatile nest with gnome chompsky? ..."
Play gyms, bottles, and Station Tavern

Love every play gym mirror

We met Zac and Erin for some tots and brews. There's been play gym time (Cheryl = GOAT) and this girl has developed quite an appetite.

ME:LE slideshow

Mass Effect Legendary Edition Garrus Liara assault rifles corrosive

So on Feros the ExoGeni corporation does bioweapon research and experiments on colonists. Noveria is an ancap dystopia full of lies and backstabbing. But, like, the game is published by Electronic Arts. Lol.