Thursday, September 19, 2019

Patrick Byrne is a looney toon; Elon Musk and Adam Neumann are extreme narcissists and spoiled brats; Musk tries to defend "pedo guy" tweet; Ludicrous: The Unvarnished Story of Tesla Motors; How Adam Neumann's Over-the-Top Style Built WeWork; What's going to happen to Whee

By Whitney Tilson

1) Patrick Byrne, who until recently was the longtime CEO of Overstock (OSTK), disclosed yesterday that he sold all of his stock.

To reassure his followers and Overstock shareholders, he released on his Deep Capture website – where he identifies himself as "a concerned citizen who has been hunting the oligarchy since 2004 and the Deep State since 2006" – the single most bizarre letter I've ever read. It's a mixture of paranoia, self-pity, delusion, and aggression. You can read it here: A Message to My Former Colleagues at Overstock. Excerpt:

You think me controversial now, but you ain't seen nothing yet. I know enough to fry the Deep State to ashes. The Deep State and the oligarchy are entwined, and they won't die quietly. There is going to be an enormous amount of return fire directed at me: the blather of the hedge fund choagies in the financial press against Overstock since I came forward is a manifestation of that (look back at what happened when I first came forward: there was silence for two weeks as the Bosses readied a new party line, then it came at us simultaneously from all directions at once). The agitprop press does not bother me (I hope it is helping you with traffic, though I have 0 idea, as I cut myself off from all information within the company the day I left). But wherever they go the organs of the Deep State (including the SEC) will surely follow. If I had stayed at Overstock or even remained a large owner of OSTK, they would try to break Overstock as a way of crippling me. With me no longer an executive, a board member, or even a shareholder, it becomes pointless for them to try to get at me that way. There are other ways they will come for me, but there is no edge for them to come through Overstock to do it...

For these reasons it may give you some comfort to know what I am doing with the capital generated by the sale of my stock: after paying tens of millions in taxes (after all, "We didn't build that," right?) by Friday the rest will be in investments that are counter-cyclical to the economy: Gold, silver, and two flavors of crypto. The gold and silver are stored outside of the United States, in Switzerland, and within two weeks, will be scattered in other locations that are even more outside of the reach of the Deep State, but are places that are safe for me. The crypto is stored in the place where all crypto is stored: in mathematical mist, behind long keys held only in the memory of someone who is quite good at storing such things in memory (with paper backups in the hands of a priest I met 35 years ago who never sits foot in the West).

These acts accomplish two objectives:

1. It provides a hedge for Overstock. If the economy craters and thus Overstock runs into tough times, those investments will soar (that's the "hedge") and you will have access to capital if needed. In fact, you will have not just access to capital, you will have access to the friendliest capital imaginable: my own. I have to wait six months for it to be legal, but anytime after March 17, 2020 I can provide a capital injection if needed by buying back into Overstock. Please remember that as you watch the global chaos. If you see the U.S. economy cratering please do not lose the sleep you otherwise might: you will have a friend who has sunk (almost) his entire fortune into investments that will soar if a crisis occurs, and who knows your business well, and who appreciates you.

Well, phew, it's good to know that Overstock is the stock I'll want to own "if the economy craters" because Byrne, having vanquished the Deep State, "hedge fund choagies," and "agitprop press," will come to the rescue!

This isn't a clinical diagnosis, but he is a true looney toon. He makes Tesla (TSLA) CEO Elon Musk and WeWork CEO Adam Neumann look like paragons of reason...

To be clear, I don't think Musk and Neumann are nuts. In fact, in many ways, they're both inspiring, brilliant entrepreneurs. But as the next two stories demonstrate, they're both extreme narcissists and spoiled brats, which leads to all sorts of erratic behavior...

2) Let's start with Musk...

Recall that in the summer of 2018, the world's attention was focused on a team of young soccer players trapped in a cave in Thailand. As the weekslong rescue effort unfolded, Musk tried to help by designing and sending out a mini-submarine.

After the successful rescue, a British cave diver on the scene, Vernon Unsworth, publicly mocked the impracticality of Musk's sub. Most people would ignore such an insignificant slight (or be smart enough not to draw attention to it), but not Egomaniac Elon! Continuing a long pattern of attacking anyone who questions him, he called Unsworth a "pedo guy" in a tweet to his 28 million followers. Musk then continued to investigate, harass, mock, and bully him, which led Unsworth to sue him.

Now, under oath, Musk is lying like a central banker on the eve of a devaluation: Elon Musk says 'pedo guy' tweet did not suggest British cave diver was a pedophile. Excerpt:

Elon Musk on Monday said he did not intend to accuse a British diver of pedophilia by branding him a "pedo guy" on Twitter, as the Tesla Inc chief executive sought to dismiss a defamation lawsuit...

Musk, 48, said "pedo guy" was "a common insult used in South Africa when I was growing up."

He said the expression was "synonymous with 'creepy old man'" and used to insult a person's appearance and demeanor.

"I did not intend to accuse Mr. Unsworth of engaging in acts of pedophilia," said Musk, who grew up in Pretoria. "In response to his insults in the CNN interview, I meant to insult him back by expressing my opinion that he seemed like a creepy old man."

This sounds 1% plausible – until this came out (darn those off-the-record e-mails!):

Musk also said his "off the record" August 2018 e-mail to a BuzzFeed News reporter to "stop defending child rapists" was based on an aide's summary of a private investigator's report on Unsworth, and that he did not then know the statement was false.

Here's my friend Glenn Tongue's take on it:

I have read everything posted from the court. Musk is the worst witness ever – he can't stop talking and is totally tied up in knots.

Here's a 43-tweet thread that summarizes his deposition (scroll down to the first tweet and read upward; #27-43 are here).

The thread highlights what a terrible human being Musk is. Not only a pathological liar, but angry, thin-skinned, and vengeful...

I find this sad because there's so much to admire about him. What he's built at both Tesla and SpaceX boggle my mind. (For more on these companies, I highly recommend Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.)

Speaking of good books about Musk, I just finished Ludicrous: The Unvarnished Story of Tesla Motors. Author Edward Niedermeyer has long been a Musk and Tesla skeptic, which certainly comes through in the book. But it's not as one-sided as I expected... Tesla is an incredible entrepreneurial story, and this book covers it well. Here is a review from the WSJ: 'Ludicrous' Review: A Revolutionary Old Product.

(If you'd like to be added to my Tesla e-mail list – roughly one e-mail per day – simply send a blank e-mail to: [email protected].)

3) After reading this devastating story on the front page of today's WSJ detailing the We Company's co-founder and CEO Adam Neumann's frequent drug use and love of tequila shots, I'm renaming it the Whee Company! It's an excellent piece of investigative journalism and reveals all sorts of shenanigans... How Adam Neumann's Over-the-Top Style Built WeWork. Excerpt:

Adam Neumann was flying high. Literally.

His office-rental giant WeWork was months away from being valued at $47 billion. Revenue was doubling annually. And Mr. Neumann was zipping across the Atlantic Ocean in a Gulfstream G650 private jet with friends last summer, smoking marijuana.

After the group landed in Israel and left the plane, the flight crew found a sizable chunk of the drug stuffed in a cereal box for the return flight, according to people familiar with the incident. The jet's owner, upset and fearing repercussions of trans-border marijuana transport, recalled the plane, leaving Mr. Neumann to find his own way back to New York, these people said.

Since Mr. Neumann co-founded WeWork – recently renamed We Co. – with Miguel McKelvey nine years ago, he has led with unusual exuberance and excess. His combination of entrepreneurial vision, personal charisma and brash risk-taking helped the company surpass $2 billion in annual revenue, and made it the country's most valuable startup.

Now many of the same qualities that helped fuel his company's breakneck growth in the private market are piling up as potential liabilities as the company prepares to go public – helmed by a CEO who looks little like a typical public-company chief.

Mr. Neumann muses about the implausible: becoming leader of the world, living forever, amassing more than $1 trillion in wealth. Partying has long been a feature of his work life, heavy on the tequila...

For startup investors, the 6-foot-5 Mr. Neumann has always had the qualities they crave in Silicon Valley founders, despite being based in New York. He is intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell...

Even former executives who disliked Mr. Neumann give him credit for an extraordinary ability to motivate employees and push the company.

He forgoes many conventions of the standard, buttoned-up CEO. He pushed for rowdy parties in the early days. He often walks barefoot around the office. In an earlier office, he blared songs by pop-star Rihanna while a trainer held a punching bag for him, and then walked around afterward while still sweaty from the exertion.

Like some high-profile CEOs in tech, he hopes to live forever, according to three people who heard him say this, and has invested in life-extension startup Life Biosciences LLC.

It says its mission is "to create a future where age-related decline is not a fact of life."...

Many former employees said they didn't always know how seriously to take some of Mr. Neumann's pronouncements. Early on, he would throw out seemingly random ideas, like adding a pool in the basement of the company's headquarters or starting an airline.

He told at least one person directly that his ambitions included becoming Israel's prime minister. More recently, he said that if he ran for anything, it would be president of the world, according to another person who spoke with him.

"The influence and impact that we are going to have on this Earth is going to be so big," he said last year at a "summer camp" southeast of London, where the company's staff were all flown for a music festival-like event. One day, he proposed, the company could "solve the problem of children without parents," and from there go onto other causes such as eradicating world hunger.

Alcohol flowed in great quantities; bartenders handed out free rosé by the bottle. Employees from around the globe posed for photos with the CEO. Some seminars had a spiritual component, including one with holistic health expert Deepak Chopra, who advocates regular meditation and yoga.

Mr. Neumann has told several people over the past two years that a personal goal is to become the world's first trillionaire.

He relishes trips in private jets. Last year, We bought one for more than $60 million, people familiar with the sale said. Mr. Neumann has borrowed more than $740 million against his stock and has sold multiple hundred million dollars of shares, people familiar with those sales say, eliciting widespread criticism from analysts and Silicon Valley investors. These share sales weren't disclosed in the IPO prospectus...

Alcohol has been a big part of the culture, particularly in We's first half-decade. Mr. Neumann has told people he likes how it brings people together, and tequila, his favorite, flows freely. Executive retreats sport numerous cases of Don Julio 1942, with a retail price of more than $110 a bottle, and pours sometimes start in the morning.

A few weeks after Mr. Neumann fired 7% of the staff in 2016, he somberly addressed the issue at an evening all-hands meeting at headquarters, telling attendees the move was tough but necessary to cut costs, and the company would be better because of it.

Then employees carrying trays of plastic shot glasses filled with tequila came into the room, followed by toasts and drinks.

Soon after, Darryl McDaniels of hip-hop group Run-DMC entered the room, embraced Mr. Neumann and played a set for the staff. Workers danced to the 1980s hit "It's Tricky" as the tequila trays made more rounds; some others, still focused on the firings, say they were stunned and confused.

Here's what I predict is going to happen...

  1. Whee never goes public.
  2. As the company tries to reduce its catastrophic $1.6 billion annual burn rate to survive, it ceases growth, lays off huge numbers of employees, and tries to sell assets.
  3. Existing investors, led by SoftBank, wanting to avoid a total wipeout, will throw good money after bad and invest $1 billion or $2 billion in a distressed round that values the company at $5 billion. 
  4. As part of the capital raise, investors will demand that Neumann step down and throw him out.
  5. None of this makes any difference, and the company files for bankruptcy a year from now.

Mark my words...

Best regards,


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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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