Postcards from the florida republic
An independent and profitable state of mind.
Want to see me leave a cocktail party early?
Send a food server over with a plate of one heinous dish.
I’ll move out of there faster than Tweedy Bird… so fast feathers fly.
What’s this poison food I won’t touch?
“Plant-based meat.”
Off the bat, the name bothers me. It’s right up there with “soy milk” – part of a never-ending war to redefine things that were once easy to understand… and downright enjoyable.
“Meat” is simple.
It’s animal flesh. It’s been like that for millennia.
But then, some “green” marketers started selling us a product.
A garbage one, too…
As in… “throw that garbage in the garbage can. Where garbage belongs.”
Today, there’s a public company dedicated to selling this tripe.
I wonder how “Beyond Meat” – a cringe-worthy name - survives.
After easy analysis – Beyond Meat (BYND) is not only my least favorite public company… but its existence as public equity represents EVERYTHING wrong with the stock market today.
Let's not “Dig in.” Let’s opt out of Beyond Meat’s existence.
Problem One: An Unhealthy Product Masquerading as Health Food
We start with the obvious.
Beyond Meat founders would like you to forget that steak, deer, chicken, pork, wild boar, elk, and more… are delicious. The long-term business model likely centers on the governments banning meat in the name of climate change. So, imagine your business model requires a descent into “forcing behaviors.”
Sounds like a wonderful future.
Despite all the push from the Bill Gates-like technocrats of the world (people trying to grow fake chicken in laboratories – yet never taste it on camera)… Beyond Meat is bad for you.
What are you signing up for?
They’ll tell you it has the same taste and consistency as meat.
If you’re trying to make something that it does not taste like the thing that it isn’t… you need a lot of magic.
In the world of cooking, ingredients become your tool to try to replicate the real thing.
With Beyond Meat – we’re talking vegetable oils (usually canola oil – not good), starches, artificial colors, chemically- made flavors, thickeners, and SALT… SALT… SALT.
You end up with a product with less protein than real meat but an incredibly high amount of your daily sodium intake. And it’s not like they’re using sea salt… this is a bunch of refined carbohydrates masquerading as delicious meat.
But that’s just the surface. Go into the actual finances of this business, and you’ll soon see the problems with this company and how the markets operate in today’s environment.
Not even cigarette brands – which will kill you – trade on the whims of broken financial models and waves of global liquidity.
Problem 2: The Numbers Are Insane
Beyond Meat is a travesty so far as shareholder fiduciary duty.
Let’s look at a few fundamentals showing that this is not a serious company for investors. As I’ll point out, the stock works for two completely different types of investors.
But so far as a disciplined, long-term investor… it’s garbage.
Its Piotroski F Score is 2 out of 9, signaling some terrible financial discipline. This metric – the F score - tells us if the executives are running the business in a way that promotes shareholder interest and a clean, healthy balance sheet.
A higher score signals that it’s buying back stock, paying down debt, and increasing asset returns and other key ratios.
Beyond Meat is rancid in these fundamental metrics.
The Altman Z score is a weighted credit analysis to determine if the company faces the risk of bankruptcy in a serious economic event. Typically, we look for scores above 2.6 to deem it healthy.
Well, Beyond Meat’s Z score is minus -0.82.
It’s even a minor credit event away from bankruptcy (or the trash).
On other fundamentals, its debt-to-equity ratio is abysmal. (Why would an investor want a company sinking in debt in higher-interest rate environments?)
Gross margins are negative (this is not a profitable company).
Its tangible book value (the value of its physical assets) is negative.
Its Net Current Asset Value is negative.
The company isn’t even – by this metric – worth $0.
These are basic metrics to display a healthy company.
But here it trades… and lies – its heart still beating… and bleeding beet juice (for color).
Problem Three: The Short-Selling Business Model
Beyond Meat is detached from fundamentals and the economy.
It is one of the market's most widely “shorted stocks” today.
This means that many traders line up to borrow the stock from another shareholder. The borrower then sells the stock into the market, hoping the prices will move lower.
If they sell the stock at $20, and the stock falls to $15, they can buy back the stock. They would then keep the $5 difference and return the stock to the borrower.
The chart below shows the most widely shorted stocks.
Beyond Meat is the fifth most “Bet against” stock in the financial markets.
There are 64.23 million shares of Beyond Meat outstanding.
Of those, a float (shares not held by insiders at the company that are available to trade) sits at 60.51 million.
Of those 60.51 million, short interest (the number of shares right now that are being sold short by investors) sits at a stunning 21.86 million. So, more than 30% of shares have been borrowed and sold into the market, and investors are trying to profit from their demise.
The reasons for all this short selling make sense: It has terrible fundamentals. The product stinks. It’s unprofitable.
But this stock has rallied TWO times in 2023… by more than 65%.
And that takes us to the next sign of a broken financial market.
The Short Business Model.
The stock has surged twice this year because of what is known as a “short squeeze.”
With short selling, the markets can go the other way for short sellers. In another example, they might sell the stock for $20, and shares suddenly rise or “squeeze” higher to $30.
The thing is, once highly shorted stocks start to rally, other traders pile on. This can drive the stock higher and higher as the original short seller must repurchase the stock at even higher levels – creating new amounts of demand.
It creates a spiraling, upward effect.
Take an example where the short seller sells for $20, and the stock goes up $10. The short seller must buy back the stock for $30 and return the shares to the institution that owns it.
That means the short seller has lost $10 by paying more than what they sold it for.
In some cases, the stock might even go higher, completely wiping out their original investment – or even worse. Imagine it’s sold for $20… and the stock goes up to $100? That’s happened before.
Plus, the shorting costs don’t include interest paid on those shares to the institution that lends them out. Short sellers will pay a fee – for example, 3% a month – to that original shareholder. That shareholder can make various amounts of money by lending shares to short sellers while maintaining their long position in the stock.
So, who owns a lot of stock that can be borrowed?
Three of the four largest institutional owners are Vanguard, BlackRock, and State Street.
These three companies are the largest operators of Exchange Traded Funds (or passive funds) that package multiple stocks and then sell the funds to large shareholders and institutions. They collect fees for the ETFs.
And they will lend up to 100% of their shares. Why?
Simply put, they don’t care how the stocks do. They’ve sold investors on the idea of holding these ETFs forever based on different themes.
They make money from the fees and, given their ownership – they have steady influence over the board of these companies. BlackRock would love for all of us to stop eating meat and buy into this pathetic plant craze.
There’s more to the story, of course.
Large institutions are the same companies that help feed the shorting of equities with High Short Interest.
BlackRock earned nearly $600 million in short lending in 2018, according to Elon Musk. That figure has drastically increased in recent years, and the funds keep expanding their holdings.
And that creates conditions for the last problem in the markets.
Problem Four: No Fundamentals, No Problem
Now, here’s the final issue I want to discuss.
Yesterday, I explained Equity Momentum at great length. As I’ve explained, money drives equity prices when there is an expansion in liquidity from central banks, private sector firms, and cross-border flows.
When there is a large burst of global liquidity – it tends to pour into risk assets quickly. The problem is that it’s not just pouring into good companies with great fundamentals.
The algorithms that drive trading have identified opportunities to fuel big squeezes on these highly shorted stocks.
So, if momentum turns positive, liquidity flows, and funds start buying up these shorted stocks, they can fuel a big run on the stock by the people who need to “buy” the stock to close their short position.
So… take my two biggest signals for 2023.
The first was on January 3, when a significant amount of capital was flushing into the system from China and Japan’s central banks. This positive momentum cycle ran until February 2.
And May, the start of a 49-day positive momentum cycle.
Look at the performance of Beyond Meat’s stock.
From January 1 to February 2, BYND stock rallied from $12.50 to over $21.00. Let’s call that a 68% return.
Once momentum soured… it was a sell.
Then on June 1, shares rallied from about $10.00 to $18.00 (let’s call that 80%). Then momentum started to fade.
So, you see… a big burst in liquidity can fuel short squeezes. Nothing is driving the underlying performance of the stock.
It’s not improving shareholder value. It’s not making new products. It’s not making anyone healthier.
It’s just screaming higher and lower entirely on Equity Momentum readings, short squeeze targeting, and the never-ending cycle of balance sheet expansions by central banks.
Currently, momentum is negative, and shares have plunged from $17 to $12 in less than two weeks.
While this is a hell of a trading discovery (and an obvious one to me), it’s not something that instills much confidence in the long-term viability of a healthy market.
Global liquidity + momentum + shorted stocks = American Casino.
Stay positive,
Garrett Baldwin
Secretary of Finance
On Tap This Week
Tomorrow… We’ll look at next week’s calendar in Republic Speak.
Sunday is a surprise.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.