Section Fourteen: Context is Nothing

Okay, now that I have the attention of people (or perhaps, just “person”) who can’t be bothered to go back to the original post, this blog’s purpose is to go over Mark Mitchell’s gargantuan showpiece one section at a time.  Last week’s post was about the 13th section of that work, and thus the star of that section was the feature topic here.  This week has nothing to do with him, so he will not be mentioned.  Simple enough?

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So it’s now April 2004, and, to even Mitchell’s disbelief, Patrick Byrne is once again on Kudlow & Cramer.  Mitchell chalks it up to Byrne’s naiveté about how the financial markets work, a trait he continues to exhibit to this very day.

But for some reason, Mitchell decides that a transcription of the last fifteen seconds of the interview, when the show is running up against a fixed commercial break and the hosts are scrambling to sum up and maybe get one more answer from their guest, is the best way to represent how it went.

Indeed, one might actually suspect that Mitchell is attempting to make the reader believe that those last few seconds were how the entire interview went, with Byrne being pressed to finish every response in three seconds flat.  But of course, a prestigious journalist like Mitchell would never stoop to something so misleading as that, right?  Surely he would put those moments in context, right??

Well, no actually.  Just a transcription of those last fifteen seconds and no further comment.  No attempt to explain what is “confusing heck out of” either Kudlow or Cramer, whoever is speaking at the start of the transcription (Mitchell doesn’t say).

And even then, Mitchell’s transcript leaves out some of what Byrne said in those last few moments.  Blogger Tracy Coenen put the “I’m all about the GAAP remark” statement of Byrne’s that Mitchell quotes, into context in an entry a few months back, and noted what Mitchell carefully removed, remarks to the effect that anyone who reported EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) numbers was “a crook”.  Which, as Coenen went on to note, was very… interesting in the context of what metrics Byrne’s company reported in later years.

So much for another short section.  Next week things get serious.  Mostly.

Section Eleven: Wall Street Blabbermouths

This week’s section is rather short (oops, sorry), but contains within it some of the most implausible narrative yet.

We pick up the action from last week with the immediate aftermath of Byrne’s January 2004 Kudlow & Cramer interview.  And Byrne is on the phone to a Wall Street broker (unnamed of course).  I guess in Utah it must be customary, after a stressful experience, to dial up a stockbroker for some commiseration.  At any rate, Mitchell portrays Byrne as being entirely unaware of vile underbelly of Wall Street and its ongoing conspiracy with the financial media, and this anonymous broker is basically giving him the run down.  So basically, the wellspring of all of Byrne’s subsequent paranoia?  This guy.

Then, “just recently” (as of the time of Mitchell’s writing?  as of the interview?), two hedge fund managers, yes, those embodiments of all that is evil about Wall Street, just up and call Byrne to tell him they were naked shorting Overstock.  No, really, Mitchell actually writes that.  The narrative even implies the hedgie guys went out of their way to carefully explain to Byrne what they were doing to his company’s stock.  Mitchell goes on to say that that the broker executing the naked short sale was also spreading some kind of false rumor about Overstock (and, again, apparently telling Byrne all about it!) to further depress the share price.  And then he went home to beat up his wife and children, one supposes.  Honestly, I’ve seen villains in kids’ movies written deeper than this.

And then, just to throw a touch of nausea into the proceedings, Mitchell goes back and contrasts this with Byrne, who is portrayed as somehow still unaffected by all this and blissfully unaware of the dark conspiracy forming to take him and his company down.

At this point I have to wonder: Is Mitchell having us on here?  Are we going to go another ten sections in and he’ll say, “Just kidding!  Now here’s my real exposé piece”?  Because we’re really at the point where this isn’t even good fiction, much less something to be taken seriously as investigative journalism.

Next week: Another journalist in the spotlight, and this one isn’t even a thestreet.com alum!

Section Ten: It’s an Investor’s Perogative…

For the first time, Mitchell actually manages to put together a reasonably coherent section, in that it basically starts on one topic and more-or-less stays on it to the end.  So rather than do a paragraph by paragraph breakdown as I’ve tended to do so far, I’m going to stick to addressing the overall premise Mitchell puts forward, at least until the big finish.

In brief, Mitchell notes that back in 2002, when Overstock first rose to prominence, it was something of a media darling, hailed as the next big challenger to Amazon, and so on and so forth.  But even by the time of Byrne’s Sith Lord presentation, Overstock was no longer getting the favorable press it once enjoyed.  Even in 2004, as long as six months after the fateful interview relived later in this section, Jim Cramer was penning optimistic articles on Overstock’s prospects.  But a year after that, not so much.

Mitchell asserts that this change of heart on the part of so many in the financial media can only be due to some outside influence, i.e. David Rocker, ordering them to go negative.

This is a point of interest because it really speaks to what I feel is one of the biggest misconceptions when it comes to investing in individual stocks.  Far too many people, I find, confuse investing in stocks with rooting for sports teams.

Sports fans almost invariably value loyalty to teams.  Even as the actual personnel of a given team changes over time, it’s where they play (half of) their games that, in general, establishes a connection to the local populace.  Thus there is virtue attributed to being a “die-hard” Cubs fan even as they find new and innovative ways to fail, and the agony of being a lifelong Red Sox fan is deemed to be worth it all when the team finally breaks through and wins the long-sought championship.

And, in a way, public companies bear a superficial resemblance to sports teams, in that they have variable personnel, they have a headquarters/home field, they have victories and defeats, and you can even keep score by following the share price.

But there’s a big difference.  Let me give you an example.  If you’re a Patriots fan, you probably expected your team to win the Super Bowl last season.  But the fact that they didn’t probably didn’t cost them very many, if any, fans.  That’s team loyalty and as I said, it’s highly valued, expected really, of those who call themselves sports fans.  But with stocks, it just doesn’t work that way.  There is no virtue seen by successful investors in going down with a sinking ship; furthermore, each person that ceases to be a “fan” of a company you’re invested in, hurts those that remain.

I also think the phenomenon of loyalty to an investment is something of a corruption of the “buy and hold” strategy espoused for so many years by the famous Motley Fool website (which, incidentally, will be getting its turn in the smearlight before Mitchell is through here).  “Buy and hold” was basically a warning against overtrading, running up large amounts of commissions, and having a big impact on your returns.  It’s not an entirely unsound principle on its face, but it has the undesirable side effect of discouraging regular re-evaluation of investments.  Indeed, the Motley Fools’ iconic home run, buying AOL stock in 1994 and riding it all the way to the big merger with Time Warner seven years later, actually made people afraid to sell positions, be they winners or losers, for fear of missing out on the next great score.

I think I’ve gone a bit far afield, so let me get to the point as it applies here, and that is: there is nothing inconsistent with being a “fan” of a company in 2002, then changing one’s mind a couple of years later, especially if the company fails to meet your expectations.  This is precisely what changed Cramer’s mind: he expected full-year profitability in 2004 and Overstock did not deliver.  Nor has it done so in 2005, 2006 or 2007, which would only seem to exonerate Cramer’s reversal.

And even then, Cramer liked the idea behind Overstock enough that he wanted to give it another chance, which brings us to the closing part of this section, where Cramer brought Patrick Byrne onto his show (this was when Cramer shared a show with Larry Kudlow) for a hot-seat interview.  At the time, Byrne, looking around, as many CEOs of struggling companies do, for something positive to accentuate about Overstock’s performance, had settled on “gross profit” as one of Overstock’s successes in 2004.  Gross profit basically means the difference between the acquisition and sales prices of goods sold, specifically excluding any expenses incurred in actually running the company, such as employee salaries.  To put it mildly, it’s a highly incomplete picture of a company’s finances, and not normally highlighted as a key metric.  Yet Byrne was doing just that, and people were raising eyebrows at this.

Even from Mitchell’s Byrne-friendly account of the interview, it’s clear that Byrne simply did not understand why anyone would ask such a question.  It’s his company and he’ll emphasize what we wants to, dammit, and nobody gets to tell him what to say or how to act!  (And boy did that ever prove true.)  You even see Cramer — of all people! — trying to defuse things by rephrasing the question more sympathetically, but Byrne was well and truly off tilt and would have nothing of it.

I don’t know if this was the first incidence of Byrne being faced with the words of his critics and reacting poorly, but I have to think that this day went a long way towards fueling Byrne’s animosity, towards Cramer, towards CNBC, towards the financial press in general, towards critics of his company, and ultimately towards critics of any company.

Next week: Fallout from the interview.

Section Six: Putting the Mad in Mad Money

We now move to February 2006. Jim Cramer and Herb Greenberg, former co-workers at TheStreet.Com and friendly rivals up until Herb’s retirement earlier this year, are together on Cramer’s Mad Money program on CNBC. Many times it seems they agree on almost nothing. But today both of them — in a way comically embellished by Mitchell — are livid.

What are they so upset about? Mitchell does not seem to think you need to know that quite yet. In fact he prefers you to believe that Patrick Byrne’s Miscreants’ Ball speech — given five months ago mind you — is somehow causing some kind of time-lapse rage in two prominent journalists.

Even though it’s Greenberg who is — rather ironically, if you’ve ever seen them in action — portrayed as the one who has completely lost his cool in the initial paragraph, the piece then veers over to Cramer and begins attacking the bejeezus out of him, portraying him, effectively, as the nexus of all “negative” (meaning, bearish) financial journalism.

Again, this is quite ironic when you’re considering that this is Jim Cramer, who closes every edition of Mad Money with the catchphrase, “there’s always a bull market out there somewhere”, and is frequently criticized for being too much of a pollyanna when it comes to the markets.  When he and Greenberg would disagree on a stock, you could make book that it was Cramer taking the bullish side and Greenberg the bearish.

But to be fair, Mitchell does not cite Cramer himself as the author of the negative stories, but rather a nebulous group he terms as “friends of Cramer”, which could (and does) include anyone that ever worked at Cramer’s signature website, thestreet.com, or been a regular guest on Mad Money, or Kudlow & Cramer, or Cramer’s short-lived show on Fox Business, or who worked with Cramer or was one of his many, many contacts during his days running the Cramer Berkowitz hedge fund.  Indeed, if you’re anybody on Wall Street these days, trader, journalist, or whatever, you’re probably no more than three degrees removed from the Reverend Jim-Bob, just by the simple fact that he’s probably the single most prominent personality in financial journalism today.  All in all, it’s a neat way for Mitchell to recast the very interconnected nature of the Wall Street community as a conspiracy.

Mitchell may vividly portray Greenberg’s anger, but it’s not long before he betrays his own, throwing any pretense of objectivity to the wind by referring to Cramer’s associates as “reporter-thugs” who routinely print stories for the express purpose of benefiting the short sellers that are their sources.  And, not content with leaving it at that, Mitchell posits that many of the targets are victims of a double-whammy, so to speak, simultaneously victimized by the selling of “phantom shares”.  The pointing out of which, per Mitchell, leads to a “vicious media smear”.  Apparently this section was intended as a demonstration.

That’s a lot of accusation being thrown around here, and Mitchell does claim to have analyzed thousands of stories to establish the pattern, but if you’re looking for any actual examples you’re reading the wrong section, and, I suspect at this point, the wrong paper.

In fact, the only specific example cited was the coverage of Patrick Byrne’s Miscreants’ Ball presentation, specifically a New York Post piece by Roddy Boyd and Dan Colarusso (both TheStreet.com alumni… GET IT? HUH???) and apparently containing an unflattering picture of Byrne based vaguely on “The X-Files”.  Mitchell also cites one line from the piece without comment:

Patrick Byrne “is not currently under any psychiatric care,” reported the Post, “and [a company spokesman confirmed] he was sober when he gave the presentation.”

One supposes Mitchell was going for a “how dare they!” reaction to his citation.  And I suppose if one has yet to actually attempt to follow the presentation, but is rather trusting Mitchell’s word about its profound and groundbreaking content, I suppose that might be a natural reaction.  But for those who have seen it, I suspect a more common reaction would be something like: “Really.”

So what was rankling Greenberg so much, to the point where Cramer said Greenberg was potentially in a position where he “can’t do his job anymore”?  Mitchell puts that off until the next section, and so I shall do likewise, until next week.

Section Three: Have a Ball

August 12, 2005 may have been “the proudest day of Patrick Byrne’s life”, as this week’s section of Deep Capture states, but it’s just possible July 15, 2008 may well have surpassed it.  To listen to advocates of Byrne and Mitchell’s movement, the order issued that day by SEC chairman Chris Cox was tantamount to an admission that Overstock’s frequently-delusional CEO is exactly the kind of man we need telling us how to run the equity markets.  And to listen to the words of Cox himself… if that’s not what he’s trying to say, he could do with a lesson or two from someone more versed in the art of communication.  Like, say, President Bush.  Seriously, does Cox still think that tossing bones like this is going to satisfy the complainers?  Anyway…

One day before the events of this section, on August 11, 2005, Overstock filed a lawsuit against Rocker Partners (now Copper River Management), a hedge fund, and Gradient Analytics, a research firm, with conspiring to drive down the price of Overstock’s common stock and profit through short-selling.  On the following day, Byrne held a special conference call discussing the suit.

Five hundred blue chip investors are said in the piece to have been on the call.  I suspect that by the end, at least 495 were surprised that the men in white coats had not yet arrived.

If you’ve followed the Overstock story at all, you may have heard of the “Miscreants’ Ball” (a reference to something else, and I frankly could care less what) presentation, and that it what attendees of the conference call got.  Among many, many, many other things, Byrne asserted that at the head of one of the grandest conspiracies in world history, was a mysterious figure he called the “Sith Lord”.  He went to some lengths to specify at that time that he had a specific individual in mind, a claim he has not only since retracted, but actually suggested the idea of the “Sith Lord” being anything other than a metaphorical construct was an invention of his detractors.

But truly, Mitchell’s piece does not even come close to capturing the… grandeur of Byrne’s presentation.  For that, I will defer to the scribework of Tracy Coenen, who captured Byrne’s speech in loving detail in a recent entry on her blog.  (Note: The blog entry contains a link to the actual transcript, that which is quoted in her blog is someone’s summation.)

Really, to look at this section of Deep Capture out of context, and not knowing the author, one would strongly suspect there was an element of sarcasm in the author’s glowing summary of Byrne’s rant.  And yet it’s all straight-up.  Mitchell truly believes Byrne’s presentation to be a work of genius and furthermore believes that history will regard it as a landmark speech, right up there with the greats:

“I have dream”
“Fourscore and seven years ago”
“They’re going to bury you under the prison”

Next week: By the time you read this I will be on summer holiday.  If I still care about any of this when I get back, and if there’s still a stock market, we’ll move on to the next section, which is about… well, honestly, I’ve read it over three times just now and am still not sure.  I’ll figure it out later.

Section Two: Happy Easter!

And now even a podcast?  I don’t want to say they’re oversaturating their market, but sheez, how’s a guy supposed to even keep up?  In other news: Woof.

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“And it all starts when Patrick Byrne gets a phone call from the Easter Bunny.”

I ask you, with an opening like that, how could Mitchell’s former colleagues at Columbia deny him the Pulitzer?

The date, strangely never mentioned in Mitchell’s piece, was January 28, 2005, and the occasion was the fourth-quarter conference call for Overstock.Com’s 2004 fiscal year.  For that year, according to the SEC filings that would not be made for another seven weeks, Overstock lost $5 million, though it claimed positive cash flow from operations of $24 million.  The results were generally categorized as strong, and while the lack of true profit was disappointing, most institutions were still willing to give the Utah online retailer some slack.  Of course, the company also had its share of critics, as all public companies do.

But nobody, at least nobody not in on it, was expecting what was to follow.

Mitchell, at least for now, writes very credulously about what occurred.  CEO Byrne receives a call from an anonymous person calling himself the “Easter Bunny” and, unaccountably, does not immediately hang up.  To be sure, Mitchell’s account has Byrne sounding very skeptical.  “But the Easter Bunny persists”, Mitchell writes, even though the only thing allowing him to persist was the goodwill of the person taking the call.

Our leporid friend goes on to make some as-yet unrevealed predictions, so let me respond in kind with a couple of predictions of my own, namely that Mitchell will prove to know full well that this incident was not, in fact, where the story begins, nor was it the spontaneous event that he currently portrays it to be.

Of course, I’m cheating a little with those predictions, using a dastardly technique called “reading ahead”.  On the other hand, who would begin a trek into the jungle without at least some kind of idea where the destination lay?

But as bizarre as this incident may have been, it was nothing next to what would follow later that year.

Base Camp: Patrick Byrne’s introduction

I could easily write 80 blog entries on the various exploits and pratfalls of… well, in the spirit of charitability, I’ll call him the eccentric CEO of Overstock.Com, Inc., Patrick Byrne. Just as an example of said eccentricity, he curiously signs off his introduction, by titling himself “Deep Capture Reporter”, rather than, you know, CEO of a fairly prominent online retailer.

But to go into all of that would distract from the task at hand.  Besides, other bloggers have already done a yeoman’s job of documenting his antics over the past few years.

Basically, Byrne’s purpose here is to take credit for inspiring Mitchell to produce this work.  Frankly, why this would be something to take pride in I could not tell you, but Byrne certainly has his own ideas about what is praiseworthy.

Byrne starts by waxing poetic about the exalted body that is the Columbia Journalism Review, noting, among other things, that the school wherein it is based also awards the Pulitzer Prize. These will be interesting comments in light of the implicit accusations soon to follow, but let’s not get ahead of ourselves just yet.

Suffice it to say for now that the CJR, while a high quality publication, nevertheless publishes only six times a year, and carries a staff of just eight people.  Bright people, I am sure, but not exactly in possession of the resources one would expect of a publication claiming to be the “watchdog of the press in all its forms”.

Byrne goes on to state that, upon giving him the leads that were the foundation for the article, he warned Mitchell that “[c]hasing this story will take you down a rabbit hole with no bottom.”  Which is a remarkably apt description of an attempt to read it as well.

Byrne then goes for the big close by selling just how big this story would be (in terms of importance, not quantity of verbiage), invoking Enron (even though some of his supporters have claimed that Enron was just a victim of the sinister forces investigated here), and claiming that the article will help explain why “reporters react when journalists investigate them” by acting like “white-collar crooks”, “refus[ing] interviews” and hid[ing] behind lawyers”.

But did you notice something about that last statement?  If you were wondering exactly how Byrne makes the distinction between a “reporter” and a “journalist”, take half credit, because he makes no effort to explain it.  But regardless of what the distinction is, note, above, that Byrne firmly labels himself as being a “reporter” as opposed to a journalist.  So, in the space of just three short paragraphs and a signature, he has effectively accused himself of acting like a white-collar criminal.

Ladies and gentlemen, Patrick M. Byrne!

Ahem.  So much for the warm-up act, then.  Next week, the wilderness beckons.

Preparing for the journey

Greetings, reader. I suppose I should say “readers” but no point in being overly optimistic about such things.

The name’s Bond.  Underbond.  A trite joke, yes, but one that was going to be made sooner or later, so I might as well get it out of the way immediately.

The inspiration for this blog was an article in the UK publication The Register, wherein Overstock Inc. CEO Patrick Byrne publicly offered a total of $75,000 for promotion of Mark Mitchell’s treatise on stock market conspiracies entitled “Deep Capture”.

Simply stated, I want a piece of that money.

Now, that said, I do not promise to be glowing in my commentary about Mitchell’s work. In fact, from the few sections that I have scanned I find it to contain some quite atrocious writing for someone who has held a prominent editorial position.

Indeed, I do not even promise to be fair in my assessment of the piece. As the Patrick Byrne himself has illustrated, what can be deemed “fair and balanced” one day can be ripped as “crap” the next. That said, Mr. Byrne seems to be firm in the belief that all publicity is good publicity, and therefore fully expect that any possible bias on my part will be set aside when judging its promotional value to Mitchell’s work.

This journey into the Heart of Deepness will not be a swift one. The piece in question is broken up into no fewer than 82 sections, not counting the introduction from Byrne himself, and I have no intention of proceeding at a pace greater than one a week, a pace that would bring me to the end of the work sometime in early 2010.

Truth be told, this is a journey I do not expect to complete. Not because of the intervention of some Russian mobster or, for that matter, the wrath of the state of Utah coming down on my head for questioning their favorite son. No, in that length of time I fully expect the situation to have changed in some way — exactly what way I cannot be certain — that will render this effort moot.

But I have been wrong before on matters of that sort. So let’s go and see what’s out there.