That Time I Bought Blockbuster Debt

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


GameStop Wants to Be the ‘Local Church’ of Gaming   [Fortune]

“We had a massive diversification strategy [previously], but the new management team, under George Sherman, our new CEO, is myopically and maniacally focused on gaming,” he says. “We need to…focus on becoming a cultural center for gaming….If [E3] is the Vatican [of gaming], why aren’t we the local church?”

“Something Wall Street doesn’t understand is lower income gamers are a massive, massive audience and GameStop does a yeoman’s service in serving that customer,” he says. “That customer typically pays in cash. That customer doesn’t have massive bandwidth in their home. That customer is a value shopper.”

– Frank Hamlin, Gamestop EVP

That customer also plays Fortnite for free.

The worst investment I ever made in my hedge fund – and by worst investment I mean by an order of magnitude – was buying Blockbuster junior debt. Sure, we bought it at a really steep discount, so that it was yielding something like 25%. Sure, we “did our homework”, as our analysts constructed beautifully detailed cashflow models and projections. Sure, I talked myself into believing that Blockbuster could construct a new narrative about its future, as I “sat down with management” for the umpteenth time and they demonstrated their Netflix-beating streaming app.

I think they made three quarterly payments on the debt before it all came unglued and Blockbuster filed for bankruptcy. Carl Icahn, who owned a lot of equity and was a big reason why we thought this could work, ended up controlling the senior debt, too, and pushed his liquidation plan through. The junior debt was totally wiped out.

What’s the biggest lesson I learned, other than it’s not enough to be in the same general vicinity as Carl Icahn, but that you better be in exactly the same security with exactly the same seniority or you will get fucked?

Secularly declining companies ALWAYS run out of time.

Management is not lying to you. It’s probably a really good plan. It could probably work out fine … IF they are given enough time. But they won’t be. Particularly when it’s the second turn-around plan.

There are just too many Carl Icahns out there.

See, Carl Icahn doesn’t care about The Company. He doesn’t care about The Plan. He cares about His Money, and he knows that it’s a Big World with lots of opportunities for His Money. So what is Carl Icahn’s attitude and message to every management team he’s ever been involved with?

Tick-tock.

I say this with admiration, not as a slight, as there are so many valuable permutations to both understanding this investment perspective in others (play the player, not the cards!) and adopting this investment perspective in myself (opportunity cost is everything!).

It was one of the most expensive lessons of my investing career. And worth every penny.


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The Daily Zeitgeist

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It’s privacy and big tech again in today’s Zeitgeist, which is all about mutually assured surveillance. And for Epsilon Theory, it hits home. I think it will hit home for you, too.

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We’re Gonna Need a Bigger Boat

By Ben Hunt | July 15, 2019 | 0 Comments

Financialization is not a mean-reverting phenomenon. It’s too good of a gravy train for Wall Street, corporate management and the White House to stop now. So they won’t. Like any self-respecting Great White shark, the Nudging State and the Nudging Oligarchy never stop swimming. They never stop eating.

Want to survive these financialized waters if you’re potential shark food? You’re gonna need a bigger boat.

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When Did You Stop Beating Your Wife?

By Ben Hunt | July 12, 2019 | 1 Comment

“De Blasio’s ‘pay parity’ hypocrisy” is a feature article in today’s NY Post, and a central article in today’s media Zeitgeist.

Dig a little deeper into the “scandal”, and you learn that the “evidence” is complete horseshit.

It’s an article specifically designed to manipulate someone like me … someone who is VERY predisposed to believe the worst about Bill de Blasio because I dislike his politics SO MUCH.

It’s a rage engagement, one of two primary forms of Fiat News used to win the Game of You.

Read more

The Upside Down

By Ben Hunt | July 9, 2019 | 1 Comment

Everything is topsy-turvy in the Upside Down of Stranger Things. That’s the Big Baddie in the picture above, known as the Mind Flayer.

Financial media is a Mind Flayer, too, especially when it comes to coverage of crypto and tech companies.

Read more

Raking it in

By Rusty Guinn | July 8, 2019 | 0 Comments

A few months ago, we noted how important it had become for public figures and corporations to control their own cartoon, lest someone control it for them. Well, now that advice has itself become the narrative. Don’t say you weren’t warned.

Read more

Here We Go Again

By Ben Hunt | July 2, 2019 | 1 Comment

“You just recently hours ago met with the Chinese president, Xi Jinping,” Carlson said. “Are you closer, do you think after that meeting, to a trade deal?”

“I think so,” Trump replied. “We had a very good meeting. He wants to make a deal. I want to make a deal. Very big deal, probably, I guess you’d say the largest deal ever made of any kind, not only trade.”

He just can’t help himself. And neither can we.

Read more

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