Thu 15 May 2008
Deep Capture
Posted by David under Bethany McLean '92 at 12:04 pm
Bethany McLean ’92 is moving from Fortune to Vanity Fair. Congratulations! One of her last columns for Fortune may have been this one on the trials and tribulations of we beleaguered short sellers.
Think the life of a famous financial journalist like Bethany is all glamor? Consider the madness she has to deal with on a regular basis.
As will be explored in a subsequent piece, it would be fair to describe my relationship with Bethany McLean of Fortune as “strained”. However, it is not unusual for her to write or call me seeking comment, generally regarding allegations fed her by crony hedge funds which she dutifully regurgitates on command, and sometimes regarding other things, too. I make it a point to respond promptly. On rare occasion when I have contacted her, she has responded promptly as well.
Thus I was a bit surprised at the turn taken by the following correspondence:
Think that is just the rantings of some Internetty crackpot? Think again! That is Patrick Byrne, CEO of Overstock. Only read the whole thing if you have a lot of time on your hands . . .
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5 Responses to “Deep Capture”
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July 5th, 2008 at 6:16 am
[...] Previous EphBlog discussion here. That Patrick Byrne, the man behind Deep Capture, is the CEO of a $500 million company like [...]
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FROSH mom says:
She doesn’t return his emails? Ignores them completely?
Except when it’s on her terms?
Alas, someone mail that gal a copy of Emily Post immediately! : )
(Can’t wait to see what she does at Vanity Fair)
Ronit says:
David, I hope that was your deadpan irony, because Patrick Byrne is pretty much the definition of “Internetty crackpot”. His company is a trainwreck, and he’s spent more time concocting schizoid conspiracy theories about “short sellers” and suing research firms than on his actual job.
More on this idiot’s track record here:
http://garyweiss.blogspot.com/2007/02/after-bell-overstock-sues-everybody.html
http://blogs.marketwatch.com/greenberg/2007/02/investors_burne.html
http://longorshortcapital.com/translating-corporate-speak-ostk-and-patrick-byrne.htm
(I’m also taking side bets on how long it will be until Patrick Byrne either a) posts a long, ranting response on this thread and begins to stalk Ephblog or b) threatens to sue me, David, EphBlog, and the board and trustees of Williams College, as a result of this comment.)
Ken Thomas '93 says:
Ronit: brief/background of a longer story: I suspect Patrick is not a fan of Williams alums (there are more connections than below, due to Tripod…).
I used to purchase in the range of $50K-100K a month from Overstock’s operations, an arrangement that had resulted from my pelding up their supply chain and offering their “grey market” suppliers better terms. In return for not disrupting the Big O’s relationships, I received a 5-15% “bonus” credit quarterly.
This was fine and dandy with me for a number of reasons, the two most prominent being that it reduced my workload, and that Overstock’s supply chains have some serious potential legal liabilities which I was glad to leave to Oversotock (repeat: grey market; unauthorized reimport of goods not designated for the US market, often mislabeled at best, at worse sold fraudulently).
You might imagine my dismay when Overstock terminated the sub-VP I had negotiated this arrangement with, and failed to supply $35K or so of credits previously promised. (I operated on very tight cash flow).
I don’t know if Patrick specifically heard my response, but it was essentially “fuck you, I’ll let everyone in the game know who your supply contacts are and we’ll see if you can maintain the supply relationships.”
One of Overstock’s errors– an error repeated by other “big elephants” in the game– was to leave the shipping manifests on large (pallet size) shipments, so it was relatively easy groundwork to trace the shipments’ origins back to the “rogue” operators (who were increasing their bottom lines by shipping foreign-bound units back to the US). Often they had the agent’s number on the bill into the US!
Easy money at the time: (…). The game now would have to be shipping US-designated (differentially priced) goods to Asia/EU, a much more difficult proposition (=multiple complex markets, languages, cultures and regulatory environments), but one which largely invalidates parts of the Overstock business model.
Regardless “nonetheless,” I have a little admiration wrt: Byrne’s attempt at arbitrage of commodity goods and his sparing with (abstract) analysts: there is a lot of unrealized opportunity (at least in the consumer electronics sectors). But like Eziba, Overstock has not gotten the details, the short supply chain management and cash holdings, anything near “right–” I never had (needed) to put more that $50K of capitalization into plays where O needed $500K to $1M+ (bless them for talking on the inventory holding costs and concurrent risks!); I generally pushed for a few days negative inventory where Overstock has +60-90 days (or worse: since they take on significant “unsellable” inventory/risk where I targeted/skimmed only goods that could be immediately ‘turned.’)
ronit says:
Thanks for that Ken. I did not know that about Overstock’s supply methods, but it makes perfect sense. Their stock has rallied recently due to “beating 1Q expectations”, but I’d love to see what a forensic accountant would have to say about that.