Archive for the ‘Technology and Business’ Category

Facebook has a lot going for it.  But one of its glaring weakness over the years is ZERO penetration into China.

Turns out dictatorships don’t like things like free speech.

Ironically, as much as FB gets slammed for privacy concerns, Facebook defiantly stood up to the Chinese government in 2009 when the Chinese demanded the release of private information from the company.

This was no small act:  For their privacy stance, the Chinese government blocked Facebook into the world’s most populous country… essentially halving their business opportunity.

THAT’S putting your money where your mouth is.

But, in a weird twist of fate, when many companies are getting slammed for the earnings impact of a US-China trade war, this isn’t an investment risk for Facebook… because they have no Chinese exposure.

And — it gets better — one of the expected outcomes of the trade war is a more level playing field, which (you guessed it) may mean Facebook becomes unblocked. 

If that happens, that could be a massive growth driver for FB earnings over the next few years.

Yet another reason why this trade war isn’t all bad.


The other day I wrote a scathing piece about Trump being a lap dog for Putin.

Today I read a blatantly pro Trump article trying to make sense of the Trump-Putin summit.

I didn’t like the writing style — felt like someone that didn’t have full command of the English language.  I also thought he was reaching, conjecturing, and defending in a less-than-credible way.

But I kept reading the long piece… almost voyeuristically… awaiting a train wreck of logic and bias… and — surprise — I found myself thinking that some of what the author was saying had merit.

I don’t like the way Trump represented America at the summit.  And I certainly don’t like all the inane backtracking he’s done in the wake of the summit (“whoops, it should have been ‘wouldn’t’ instead of ‘would,’ my bad”).

However, Putin is a very bad guy.  The Chinese may want to dominate the world, but it’s business related… they are as capitalistic as we are.  Putin doesn’t give a hoot about capitalism or business or democracy or freedom.  As cold-war as this sounds, I believe Putin’s idea of domination could devolve into annihilation.

So maybe Trump played him in the only way he could?  Lull the dictator with a war-mongering bias into a false sense of superiority?


Wow.  I’m now officially confused.

There was a great Peter Sellers movie in the 70’s about a person that, through random events, began influencing the world.

The wonderful thing about the movie is you never knew if his character, Chauncey Gardner, is a messiah-like figure with an extraordinarily simple but powerful message… OR just a simpleton who got lucky spouting innocuous kindergarten phrases.

Similarly, I can’t tell whether Trump is a lucky, haphazard idiot… OR some kind of seat-of-his-pants savant tactician.

Here’s what I do know:

His style is immaturely unlikable and highly, offensively, DANGEROUSLY divisive.

But he’s getting things done — including some things I absolutely despise… but also a few things I really care about — like no other President I’ve seen in my many decades on the planet.

Maybe this is just what it feels like when old, crusty, inefficient, and ineffective things get fixed?

China is trying to do an end-around and create some kind of “united partnership with Europe against the U.S.”

Despite a raging battle with the Trump administration, Europe flat out turned down the Chinese overture.

From ZeroHedge:

But why does Europe – which has so staunchly publicized its disagreement with Trump’s policies – refuse to align with China?  Simple: behind closed doors it admits that Trump’s complaints about Beijing are, drumroll, spot on.


… perhaps because China’s veneer of the leader of the free trade world is so laughably shallow – China was and remains a pure mercantilist power, whose grand total of protectionist policies put both the US and Europe to shamethe European Union has outright rejected any idea of allying with Beijing against Washington ahead of a Sino-European summit in Beijing on July 16-17.


Europe has absolutely no belief that Beijing will ever follow through with its promises.

China is so bad that not even the, “enemy of my enemy is my friend” maxim can hold water.

Apple (AAPL) reports after the bell today.

Everyone expects a miss.  Lots of people have already significantly cut iPhone and rev estimates.  The stock has already fallen about 10% (correction territory) in just the last two weeks… so a lot of negativity is already priced in.

On the other hand, what’s NOT priced in are two biggies:

(1)  Apple is going to talk about what it’s going to do with its MASSIVE repatriated cash horde.

I think this is going to be stunning… since I believe it may be the LARGEST cash repatriation EVER for a corporation.

All kinds of stock-positive things will be discussed… like significantly raising the dividend… or massively increasing buy backs… and so on.

So this will be a positive.

(2)  The market is so totally fixated on iPhone that it sometimes forgets that Apple has other massive businesses, too… like services… like Mac… like iPad… and so on.  And like the rest of tech this quarter, I think those will surprise to the upside as well.

So, my thoughts are these:

The bad news about iPhone is already mostly priced in, which I think minimizes or eliminates the downside.

The good news about repatriated cash usage and all the other Apple businesses are NOT priced in.

So I tend to think they’ll be more of an upside surprise than not.  Which is counter to the way everyone’s going into this earnings call.  As a contrarian, that’s scary but what I like as an investor.

I can almost write a book on a tech company named Longfin (LFIN), but given their unbelievably crazy trading history and corporate antics, I’m sure someone like Michael Lewis (of “The Big Short” fame) is already beating me to the punch.

Yes, this really is a Hollywood kinda story!

Sorry in advance for the long post… you shouldn’t actually read this unless you like stock stuff.  :)

Simply put, in an investment industry that’s decades and centuries old, this tech company Longfin seems to be in unchartered waters… every professional that I’ve spoken with at Schwab, Nasdaq, and even the Options Clearing Corporation (OCC) all have said they’ve never seen anything like this.

Longfin went public on Dec 13, 2017 under the ticker symbol LFIN.  The shares were priced at $5, giving it a market capitalization about $350 million, supported by an unaudited $28 million in revenues realized through the private acquisition of Stampede Tradex Pte Ltd in June of 2017.  Of note, one of the major partners in Stampede was the Longfin’s CEO, Venkat Meenavalli, an entrepreneur from India.  In all my history of reviewing offer documents, I’ve never read any CEO describe themselves as “a financial wizard” …already I’m wondering who’s advising these folks.

Longfin proudly touted itself as the first FinTech company to go public using abbreviated Nasdaq rules, a so-called “Reg A+” filing, created by the 2012 JOBS act.  Essentially, it allows smaller companies easier access to the public markets.  Reg A+ companies can also raise capital from any investor — not just accredited investors — just like bigger, more established companies.  One of the hopes is Reg A+ companies grow up to provide lots of American jobs.

Two days after Longfin went public, it acquired a cryptocurrency firm.  Smack-dab in the middle of the full-blown crypto craze, LFIN stock went crazy… from an already richly-priced $5 a share to over $140 in just a few days… a $10 billion valuation!

And, just a few months later, LFIN is headed to $0.

Here’s how we got from there to here:

*  The very first thing you notice about Longfin is buzzwords abound in all of their materials… so much so that even tech savvy folks have been scratching their heads wondering what the company really does.  The simplest description I could find was: “US-based, global FinTech company powered by Artificial Intelligence (AI) and Machine Learning.”  Best translation of that I have is that they’re mostly a commodities trading platform.

*  But there’s a problem already:  When people tried to find their U.S. office, all they found were three empty desks in an incubator space.

*  LFIN’s original accountants quit after just one month on the job (February 2017), leaving the company to operate the entire rest of the year — and go public! — with unaudited financials (that’s what first attracted my attention).

*  That may be one of the reasons why I believe they are way overstating revenue… if they are, in fact, just a trading platform, then they should recognize trading fees as revs… yet, for some reason, they’re booking the sales transaction as revenue.  This is material… it’s the difference between recognizing $66.6m in physical commodity revenues vs. $1.6m in trading fee revenues.

(I know you might be thinking, “well, then, this is obviously a scam…” and it may very well turn out to be one… but that’s what makes this story so perversely fascinating… please read on!)

*  The CEO purchased another company, a nascent cryptocurrency company — with zero revenues — just two days after LFIN went public… without any mention of the possibility of this in the offering document.  But it’s not like this wasn’t contemplated… or that this company was just any company… the CEO owned 92% of this crypto company!  This, of course, is a massive conflict of interest.

*  On December 18th, CNBC interviews CEO, which should be mega-positive given LFIN’s rocket performance, but instead it turns into a public relations fiasco.  On screen throughout the entire 12-minute segment is the overlay:  “CRYPTO STOCK OR CRYPTO SCAM?”  As if that’s not bad enough, the CNBC panelists, including Brian Kelly, who’s carving himself out as an expert investor in the crypto space, act more like velociraptors cornering prey.  I really want to say, “Not helping matters is the CEO’s thick Indian accent and manic responses,” but in a very weird way, not being able to understand most of what the CEO said actually kinda worked in his favor… in that you couldn’t tell if his answers were good OR bad.  Clearly the panelists couldn’t understand him, either, because every time they moved in for the kill… and the CEO responded… they had that puzzled, “did he just answer my question??” look on their faces.

*  Half the board of directors are employees… that’s not just bad corporate governance, but irresponsible governance.

*  On January 22nd — just a month after the company went public and still supporting a hefty $3.5 billion marketcap — LFIN literally gave their company away.  They entered into what can only be described as an awful financing agreement with notorious bad-boy financier Hudson Bay Capital, a company that had previously been busted by the SEC for short-selling violations and stock manipulation.  In the best of circumstances, this meant painful dilution for existing shareholders.  In the worst of circumstances, well, keep reading.

*  On March 16th, Longfin issues a press release that it was being added to the prestigious Russell 2000 and Russell 3000 indexes.  This is a big deal because that meant that Russell ETF’s are now required to buy the stock.

*  On March 26th — just 10 days later! — the Russell Indexing organization issues a release that it is removing Longfin from their index due to “insufficient free-floating shares”.  In other words, Longfin simply didn’t sell enough shares to the public — in fact, less than 20% of what was on their offering document — so the stock should never have been included in the first place.

*  On April 2nd, LFIN turns in its tardy 10-K annual report.  There’s a little nugget in the report that doesn’t go unnoticed:  Longfin is being investigated by the SEC!

*  This is all way, way, way too much for intelligent investors (i.e., not “pump & dump” traders).  Short-interest builds to epic proportions because, well, we all believe this may actually be THE SHORT OF THE CENTURY!

*  CNBC interviews the CEO again on April 4th, this time to address the SEC allegations.  You would think someone — anyone — would have practiced with him.  But, no.  The second interview was just as awkward and illegible as the first.  There was a slight difference, though.  In the first interview the CEO was a bit more combative… and why not, his company had just zoomed to a multi-billion valuation.  In this second interview, you got the sense that he was really trying make sense of it all as well.  Trouble is, I can’t tell whether to feel empathy for someone who is just way out of his element and maybe even caught up in something beyond his control… or anger because this guy was brazen enough to try to pull the wool over our eyes right in front of our faces.  

*  On April 5th their second accounting firm quits, after being on the job only two months (Feb and Mar 2018).

*  On April 6th, Nasdaq, which has not only grown tired of waiting for required compliance material, but maybe more importantly embarrassed by this whole situation, issues a non-compliance note… with accelerated due dates (rare)… and, more significantly, HALTS THE STOCK with a dreaded “T12” designation (the worst halt Nasdaq can issue).  No one knows when a T12 stock may trade again… it could be never.

*  On April 6th the SEC lowers the boom on LFIN, charging them with “illegal distributions and sales of restricted shares” involving the company, its CEO, and three other affiliated individuals.

*  Remember bad-boy financier Hudson Bay?  They’re baaack!  April 13th was the 5th consecutive day LFIN stock was halted, triggering one of the loan covenants with Hudson Bay.  Longfin had received an initial payment of $5 million and, subject to registering a bunch more stock, LFIN would have then received the next big traunch of money.  Well, they didn’t get that stock registered (so they didn’t get any more money)… and they didn’t trade for five consecutive days (so they violated the terms of the financing)… so, guess what?  Hudson Bay called the loan on them… BUT, it’s not just for the $5 million they received, the awful financing agreement LFIN signed gives Hudson Bay the rights to call a total of $33.6 MILLION of the financing, money they haven’t even received yet!  Payment was due on Friday, April 20th.

*  LFIN has little money left.  It appears they’ve spent their IPO funds and have chewed into the $5 million in initial financing from Hudson Bay ($1.3 million of which was spent just on “deal fees”).  So the only way they can pay $33.6 million back is to get new financing, which won’t happen (and even if it did it would mean completely washing out all shareholders), OR renegotiate with Hudson Bay, which can only mean even worse shareholder dilution than the original note.

So here we sit on Saturday, April 21st.  Presumably TONS of interesting things happened behind the scenes yesterday:

—  Did LFIN and Hudson Bay renegotiate a deal by the 4/20 deadline?  It doesn’t really matter to shareholders… either they did and shareholders get significantly diluted… or they didn’t and LFIN declares bankruptcy.

—  4/20 was also the earliest part of the Nasdaq’s response window for the original non-compliance, so did Nasdaq accept LFIN’s original non-compliance plan OR decide to proceed with delisting — essentially kicking LFIN off the Nasdaq exchange and subjecting it to the dregs of the “Pink Sheets” where only of little consequence companies — also known as “Penny Stocks” — trade?

— Was it just a coincidence that Hudson Bay’s 4/20 deadline corresponded exactly with a major options expiration date?  Will we find out that perhaps Hudson Bay is up to their old antics by playing both the long and short sides of the aisle?

Thanks for your patience thus far!  We’re now at the subject of this post.

Even if this company was stellar — which it isn’t — Longfin is still hosed because Hudson Bay Capital is either going to dilute everyone OR bankrupt the company.

But, because of the EPIC short position, there are some people that think if the company ever trades again — even on the Pink Sheets — we could see the MOTHER OF ALL SHORT SQUEEZES… given everyone has to BUY shares to close their short positions.

I know, I know, crazy but true… there’s a possibility that this halted, SEC sanctioned, all-but-bankrupt company could still be worth billions again — or tens of billions — even if for only a short period of time!

And, what about option holders?  Options have expiration dates… but the stock is halted… which means those positions can’t be closed out.  Such an expiration date — 4/20 — was yesterday, wiping out MILLIONS AND MILLIONS in trading profit.


But even that doesn’t tell the whole story.  Normally, option holders have the right exercise their options (and pay a hefty margin fee for the pleasure to do so)… but remember the stock is halted… and remember the extremely low number of shares in the public’s hands (that’s why the Russell index gave them the boot)… and finally remember the extreme short position in the stock… all of that means brokerage houses simply can’t get their hands on ANY shares.

Enter the OCC, the organization responsible for option fulfillment.  On 4/20 the OCC issued a memo saying it would offer brokerage houses “delayed settlement,” which essentially said, “we’ll let you exercise and it won’t count until the stock begins trading again.”

That sounds like the OCC has just rode in on a big, white steed and saved the day, right?  Uhm, maybe not.

First, not all brokers took the OCC up on their offer.  TD Ameritrade and Interactive Brokers did.  Schwab didn’t.

Second, you won’t really have a choice when to close out your position because participating brokers will buy-in or sell-out during the first trades possible.  And that’s going to be incredibly dangerous because the ONLY thing we know is that NO ONE knows what the heck LFIN will do when it resumes trading again.


LFIN turns a lot of what we know about investing on its head:

*  LFIN is essentially a washed out and/or bankrupt company that, through — and because of — absolutely normal investing mechanisms, could still be worth billions.

*  Investors that did the research and made the exact right investment call may lose everything.


So now we’re all eagerly awaiting answers to some very specific questions:

—  How long will LFIN stay halted and will this wipe out even more options positions via expiration and/or the inability to exercise and/or the uncertainty of where the stock will open?

—  If it ever trades again, will the stock sky-rocket due to a massive, massive short squeeze and maybe even ignite a new feeding frenzy of momentum players?

—  Or will LFIN plummet because the company is essentially washed-out or bankrupt?

As the tagline of that famous tabloid magazine goes, “Inquiring minds want to know!”

(Whew!  If you stayed with me this long, bravo, you now have a front seat to a history-making trade!)

5/24/18 UPDATE:  After a long absence, LFIN started trading today… first on the grey sheets (where there is no market makers or bid/ask)… and later in the day on the pink sheets.

The answer to all the speculative questions above?  LFIN closed on April 6th at $28.19.  It opened today, May 24th, at $5.05.  I’d say that’s a big crash.

But, true to form, there just had to be some drama.

Since tickers report gains and losses off of the previous day’s results… and since LFIN was halted yesterday… tickers used the first trade today as the baseline.  Turns out LFIN closed today at $7.15… so to all the tickers out there — and many news outlets — it looked like LFIN jumped almost +42% (from $5.05 to $7.15)… even though it actually CRASHED almost -75% (from $28.19 to $7.15).

To the average investor out there, it looks like LFIN is off & running again… ugh!


Mark Zuckerberg, CEO and chairman of Facebook, just posted a good piece about this whole “data scandal.”

Not only does it appear that Facebook plugged up holes in their system years ago — as in, Facebook is not asleep-at-the-wheel…

… but Cambridge Analytica, the company accused of abusing the data, is categorically denying that any data was even used.

So it will be nice to find out the real story here.

With this said, the market is all about valuing in today what it thinks will happen tomorrow.

And in that regard, I think the market has overreacted about Facebook.

Because, regardless of what is actually discovered, the most likely fallout will simply be greater regulatory scrutiny… but not just affecting Facebook, but all ad platforms… and, in fact, all advertisers… which is essentially the entire business complex on the planet.

And, practically speaking, if something affects everyone, will it really affect anyone?

Businesses will still have to advertise.  Facebook will still control over 2 billion sets of eyeballs.  Unless we see a mass exodus from Facebook properties (Facebook, Instagram, WhatsApp, Oculus VR, etc), Facebook will still be raking in a lion’s share of ad dollars from advertisers desperate for any kind of targeting.

Honestly, I believe Facebook has more to fear from the changing generational preferences in sharing tools — as in, my friends use Facebook but their kids don’t — than they do from the government.

I’m still trying to figure out all this Facebook stuff.

Seems like everyone’s trying to figure out if whatever happened really did sway elections and destroy the democratic process as we know it.

Well, if it did, I guess no one cared when Obama and the democrats used Facebook data to help them win elections.

I’m just sayin’.

P.S.  If Putin did try to use social media to sway our elections, I wonder how he’s feeling about that now?  My guess is he’s probably thinking Hillary would have been a lot more predictable than Trump.  Good luck, Emperor Putin, trying to negotiate with a 4th grader!