In case you didn’t hear, Hertz got approval to sell $1B of common stock to the public which is bidding up its shares. Hertz however is in bankruptcy with its debt trading for less than $.50 on the dollar. Issuing stock in such a situation is unprecedented. These are unprecedented times I guess. The fact that stock traders are bidding for shares which are subordinate to debt that isn’t even going to be made whole feels awfully kangarooey.
- Matt Levine’s write-up is funny and educational. (Link)
- Alex Danco describes Hertz as the first example of new type of bubble — a view that the future doesn’t matter. This type of bubble is a new branch “on the financial tree of life”. He also expects this type of bubble to only happen once. (Link)
Danco’s description of the bubble dynamic in Hertz is a sign of just how meta-weird the world can feel sometimes. The dynamics of markets have become their selling point. Not their role. Automobiles were a transformative breakthrough as a transportation function. But anything that covers distance that quickly is even more fun to race and crash. To thrill-seekers, the convenience of faster transport isn’t even a secondary attribute. It doesn’t even figure into their framework of “what is a car for?”. If you find enough of those people, you have found a source of demand for the same product for different reasons. Hertz as roulette not equity. No veil of “investment” pretense.
So the question that remains — has anyone ever bought chips to play in a bankrupt casino? That’s what those new shares will be. Just don’t be the last one to cash out at the cage.