Tuesday, October 13, 2015

Q3 Commentary

Fast N’ Loose

I love the classic car shows on TV.  More precisely, I love the classic cars on the car shows.  The characters on the car shows I can mostly do without, but to see the cars, you have to buy a ticket to the entire circus.  Someday there will be a box that allows you to fast forward a live broadcast – not only will you be able to skip the commercials, you’ll be able to skip the boring and annoying parts of the programs.  I can hardly wait.

I often get my car fix watching “Fast N’ Loud” on the Discovery Channel but I also spend time with the Count on the History Channel’s “Counting Cars” as well as Discovery’s “Rusted Development” which is a combination of a lower-key “Fast N’ Loud” and “Hoarders”.  The latest entry in the genre is a Discovery Channel show about cars in Cuba: “Cuban Chrome”.  Predictably, it seems to revolve around the problem of obtaining the parts they will need to fix up their latest find – Yay Communism!  This one will likely die as the trade embargo comes down – there will be a fully-stocked Auto Zone store on the corner across the street from an O’Reilly’s – no more suspense.

Regardless of the premise or the theme, all of these shows feature scenes of “The Deal”.  You know, that moment when Desire and Greed meet Money, sometimes with a voice-over soliloquy featuring the characters’ thoughts or a cut-in of their thoughts as the deal goes down on camera.  The Bid and the Ask.  It always reminds me of a used car lot – since that’s what it is.  Often, the buyer and seller are far apart on their price, but as the back and forth goes on, a price somewhere in the middle is usually agreed upon, they shake on it and it’s on to the next deal.  Like a used car lot, the information asymmetry favors the seller – he knows what he has and knows his bottom line price, and I always hope he knows the real value.  I have to think that having the camera crew present puts extra pressure on the sellers in these situations – kind of like having your mom and dad observing in your 1st Grade classroom.  You want to be on your best behavior and don’t want anyone getting the impression that you’re not nice or you’re hard to deal with.  This pressure on the sellers sometimes leads them to accept less than they really wanted – sometimes a LOT less for the privilege of “Making a Deal” on TV.  They can tell their friends about it! They’re famous! It’s their “15 minutes”!  I wonder how they feel about it after they see the final, edited show featuring their trading acumen.  Films and TV shows (and political ads) are all about editing – anyone can be made to look like a genius, a rube or a liar from the same live footage – it’s all in the editing.  When you are watching, it is easy to forget that what you’re watching didn’t happen in real time, but in a series of live action scenes captured from different angles and at different times and then edited into a dramatic, coherent whole.

A recent episode of “Fast N’ Loud” had me pondering all of this and caused me to think about those archaic terms “honesty” (and especially) “integrity”.

The star of “Fast N’ Loud” is Richard Rawlings, the owner of Gas Monkey Garage - a classic car restoration and customizing shop in Dallas TX.  He is described in the show opening as a “Hot Rod Hunter” and is shown traveling around the country looking at old cars for sale, often what are called “barn finds” – a car that has been sitting in storage for a long time, sometimes in a true barn, but more often in a garage or storage facility.  They are invariably dusty, dirty diamonds in the rough.  His job is to buy it (or them) for the lowest possible price for resale at the highest possible profit margin.  Nothing wrong with that.

This episode featured a barn find full of classic Chevrolet Camaros and enough parts to assemble another barn full.  It was the kind of find all us tire kickers dream about (not that we want to buy it, just that we want to witness the discovery, kind of like archeologists).  The collection had been amassed by the seller and his wife over a period of 40 years or so – it was their shared passion.  He had recently been widowed and decided that it was time to sell.  Enter Richard Rawlings and the camera crew.

The seller wanted to sell everything – it was all or nothing – all the parts and all the cars.  His asking price was $225,000.  Rawlings’ counter bid was $150,000, and he said (off-camera) he knew someone who might be interested in the parts.  The seller countered, asking $175,000.  Somehow they ended up at $150,000 and shook on it (I did a double take right there on the couch – “Did I just see what I think I saw?”).  I can only think the seller didn’t really have it in him to stick to his guns and gave in.  But wait – it gets better – or worse, depending on one’s point of view.

The “guy who might want the parts” came on the scene – and right there in the seller’s garage (nothing had been moved) - said he’d take the whole deal and would pay Rawlings $200,000.  So Rawlings hem-hawed once and said “done”.  He re-sold something he’d owned for all of maybe 30 minutes (hard to know exactly) for a $50,000 profit without even lifting a finger.  And of course, they had the obligatory “brag shot” where he celebrates his wheeling and dealing.

So you might say “Where’s the problem? Ain’t this America – the land of Caveat Venditor* and Caveat Emptor?”  So here it is:

IF Mr. Rawlings was an honest dealer and had integrity, he would’ve done something like introducing the seller to his new buyer and letting the seller receive a better price, a 2/3rds retracement of what he had given up ($50k divided by $75k = 2/3).  He could’ve asked the seller to pay him a finder’s fee for his efforts, 5% ($10,000) would’ve been generous.  He did none of these.  Instead, we are treated to the brag shot.  I doubt that seller will be doing any bragging about the deal he made.

Another trader loses his shirt in the Market.


*Caveat Venditor: Latin for “let the seller beware” – it is the opposite of the more oft-quoted Caveat Emptor – “let the buyer beware”