Royals Rumblings - News for November 8, 2017

Jeff Sullivan at FanGraphs has learned something bad about the Royals, but it’s really several bad things. These of course are longstanding things Royals fans have known for some time. Welcome to the pain, Sullivan.

In terms of top talent, the Royals are last. In terms of supporting talent, the Royals are last. In terms of depth, the Royals are last. Steamer presents a rather damning case, even if all this does is confirm what you kind of already suspected. It’s known around the industry that the Royals are in a challenging spot. They’d tell you as much, themselves. Yet this might not just be a window closing. This could be a window slamming shut. Slamming shut so hard the window itself shatters into a million little pieces.

Former Royals Review Overlord Craig Brown looks back at what went wrong with the Trevor Cahill et all trade with the Padres last July.

The three players in the trade combined for a -0.1 WARP. None of the three contributed in ways the Royals likely imagined when they pulled the trigger on this deal. Cahill will hit free agency. Buchter and Maurer are slated to return to the Royals and may yet make something out of this deal.

Of no surprise, Jeff Flanagan of MLB.com reports that the Royals have extended several qualifying offers:

The Royals on Monday extended qualifying offers of $17.4 million each to first baseman Eric Hosmer third baseman Mike Moustakas, and center fielder Lorenzo Cain.

Each player has 10 days to accept or decline the offer, during which time they can negotiate with other teams.

Nicholas Sullivan at Kings of Kauffman looks at the ten best Royals offensive seasons of all-time (warning: slideshow).

Meanwhile at FanGraphs, Dave Cameron covers the “big question” every team faces this offseason.

But regardless of where a team is on the success cycle, every team is going to have answer the same question this winter. This question hangs over the evaluation of nearly every player in the big leagues, and will impact both what kinds of players a team will acquire, how they value them, or whether they feel their internal options are as good as what they can bring in from the outside. And this question has little to do with each player’s own abilities, yet might have a big impact on their expected performance.

In all 30 front offices, the off-season plan will be significantly impacted by one big variable: what kind of baseball should they expect to play with in 2018 and beyond?

On the rare days that I do the Rumblings, you girls and guys are subject to fun, interesting market and business stuff instead of boring video game and classical music nonsense like other days.

Major indexes continue to make all-time highs, but tax policy uncertainty has caused some investors to take gains.

Bill Ackman and Pershing Square were not voted onto the board of ADP. You may know Ackman from his seemingly life-long short of Herbalife (which I agree with him as being a total pyramid scheme). That of course has been a very bad idea (outside of the fundamental issue with Herbalife), as Herbalife (ticker: HLF) is up ~20% over the past 52-weeks, and up 120% since January 2015. Ackman has since switched his short position (which is a safer way to bet against a stock but also potentially more costly) to put options (more more riskier than shorting but of course a much higher payoff).

Ackman’s hedge fund (Pershing Square Capital Management) has performed poorly the past year (especially considering it’s a hedge fund), as they’ve bet against Herbalife (up +20%), for Chipotle (down 28%), and for Mondelez ( down 10%). Negative returns in hedge funds should never happen, otherwise investors are effectively throwing their money away. Meanwhile fellow activist investors David Einhorn and his hedge fund Greenlight Capital have been struggling. In their most recent report, they were short Amazon (up 56%), short Tesla (up 58%), short Netflix (up 57%), and short Caterpillar (up 64%).

Speaking of options and derivatives, Goldman Sachs and other large investment banks are moving out of the options business, as volatility has fallen alongside volume. Options pricing is based on volatility (more volatility, the higher the cost), so a decrease in volatility as the markets just continue to go up has choked profits.

Millennials are at it again. Apparently we (I was born in 1989) are now ruining the rental market because we are buying homes instead of renting.

It’s a little thing, but please email your representatives to fight to save the electric vehicle tax credit that is in jeopardy with the new tax reform proposal. EV credits were once something only the richer folks got when electric vehicles cost $90K+, but as more car manufacturers are producing modest priced EVs, this will help make it more affordable to the middle and lower class to purchase these vehicles. The tax credit isn’t much in the grand scheme of things (a maximum of $7,500) but for some EVs that could be 30% of the car cost coming back. Automakers are fighting back as they are dumping billions of dollars into rolling out electric vehicles, and the tax credit helps make their cars more affordable. I have skin in this game as a Model 3 reservation holder. You can automatically find and email your federal representatives here. Obviously an important part of reducing greenhouse gases, slowing climate change, and concentrating on renewable energy is the mass adoption of electric vehicles, something that still remains to be seen (some estimates put it as soon as 2025). Making electric vehicles more affordable, at least for the first ~300,000 that the tax credit allows for, is an important step. Vehicle producers are taking notice, and that’s where the real groundwork is being done.

My final piece is on the stock Helio and Matheson Analytics (ticker HMNY). They are a small “big data” firm with a $124M market cap (for comparison, GM has a $60B market cap). Some months ago they invested in Movie Pass, a monthly subscription service that gives you unlimited access to in-theater movies for $9.99 a month. Since then their stock has gone on a wild ride through speculation, release of subscriber numbers, and general unconstrained chaos. This time last year the stock was at $5 per share, by May it was a $2.20 (an all-time low), but when word got out that they bought a majority share of Movie Pass, it took off and at one point hit almost $39 per share. That’s 1000% return in a month for the lucky few who had shares in early-September. Since that all-time high, it’s fallen 60%. On Monday, the stock was up 40% based on news that institutional investors bought warrants in the company (giving them the ability to buy shares at a specific price). On trading Tuesday, it’s down 8%. This stock has had days of: +64%, +55%, +47%, -37%, -24%, and -18%.

Based on the stock's historical volatility, it could be anywhere from $75 per share to bankrupt in +/-3 standard deviations by May.

Your song of the day is Thrice - Words in the Water (live)