The rising price of shares, art that supposedly uses non-replaceable token technology and bitcoin have led some market observers to warn that investors are becoming irrationally exuberant, increasing the risk of a crash.
Exhibit A, according to a prominent investor: A New Jersey sandwich shop with paltry sales, and a market value of just over $ 100 million. Hedge fund manager David Einhorn, who famously called Lehman Brothers for the 2008 collapse, wrote in a quarterly letter to customers this week that the astonishing market value of the sandwich shop, Your Hometown Deli, is the latest sign investors are getting loose.
“From a traditional perspective, the market is broken and may be in the process of breaking completely,” Einhorn wrote.
He added, “Small investors who get sucked into these situations are likely to end up harmed, but the regulators – who are supposed to be protecting investors – seem neither present nor curious.”
Hometown International, which, despite its name, owns a single restaurant in Paulsboro, New Jersey, had sales of $ 14,000 last year. That was down from nearly $ 22,000 the year before. Despite modest sales, the delicatessen’s stock, which has been publicly traded since 2019, has risen nearly 300% over the past year to nearly $ 14. That recently gave the company market value – derived from adding up the price of all of its shares. – of nearly $ 120 million.
Credit to Google Earth
The company does not have full-time employees. Hometown CEO Paul Morina is also the company’s chief financial officer and treasurer. Separately, he is also the full-time principal of Paulsboro High School and the school’s wrestling coach.
A call to the number listed in a Hometown financial report was not answered. A message left at Paulsboro High School for Morina was not answered.
Shares of Hometown fell 3% to $ 13 on Friday when Einhorn’s letter was circulated – still well above the deli stock price of about $ 4 a year ago.
“Strange things”
In his letter, in which Einhorn also predicts rising inflation and warns of growing government debt, the hedge fund manager said Hometown is just one example of what he sees as a growing gap between stock prices and the financial reality.
“Strange things are happening with all kinds of stocks,” said Einhorn. “Last year, one day in June, the inventories of a dozen bankrupt companies roughly doubled based on a massive volume.”
Market skeptics see other signs of a potential bubble. One of the most famous came earlier this year when the Shares of video game chain GameStop skyrocketed more than 2,000% in less than a month. That gave the troubled retailer, which hadn’t turned a profit for years, a market cap of $ 30 billion. A number of other struggling stocks, such as pandemic-scarred AMC and software maker Blackberry, were also pushed up, likely by members of a Reddit messaging group in what became known as the “meme stock” rally.
In another clue that some Wall Street analysts say could point to foam in the marketplace, investors have been picking up on offerings from “special purpose acquisitions” or SPACs over the past year. The corporate structures are often referred to as “blank checks” companies because they sell stock to investors before the firm actually owns a company, with the promise that corporate managers will use the money from the sale of stock to make acquisitions. Once considered risky, these types of investments have suddenly been embraced by investors.
More recently, commentators have pointed to rising prices of digital artwork sold as bitcoin-like NFTs as the last sign of a potential bubble. Earlier this year, a relatively unknown digital artist, Beeple, sold an NFT for $ 69 million, more than the price that famous artists like Picasso or Andy Warhol picked up.
Bitcoins themselves have also skyrocketed, recently hitting above $ 60,000 for the first time. The digital currency traded for just over $ 6,000 per bitcoin a year ago.