CBS News - David Einhorn Letter: A Deli Valued at $100 Million is Proof "The Market is Fractured"
The soaring price of stocks, art that uses so-called non-fungible token technology and bitcoin have led some market observers to warn that investors are getting irrationally exuberant, raising the risk of a crash.
Exhibit A, according to one prominent investor: a New Jersey sandwich shop with a single store, paltry sales and a market value of just over $100 million. Hedge fund manager David Einhorn, who famously called out Lehman Brothers before its 2008 collapse, wrote in a quarterly letter to clients this week that the head-scratching market value of the sandwich shop, Your Hometown Deli, is the latest sign that investors are getting unhinged.
"From a traditional perspective, the market is fractured and possibly in the process of breaking completely," Einhorn wrote.
He added, "Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious."
Hometown International, which despite its name is the owner of a single restaurant in Paulsboro, New Jersey, had sales of $14,000 last year. That was a drop from nearly $22,000 the year before. Despite its modest business, the deli's shares, publicly traded since 2019, have soared nearly 300% in the past year to nearly $14. That recently gave the company a market value — derived from adding up the price of all of its shares — of nearly $120 million.
The company has no full-time employees. Hometown CEO Paul Morina is also the company's chief financial officer and treasurer. Separately, he is also the full-time principal of Paulsboro High School as well as the school's wrestling coach.
In his letter, in which Einhorn also predicts rising inflation and warns about the growing national debt, the hedge fund manager said Hometown is only one example of what he sees as a growing disconnect between stock prices and financial reality.
"Strange things happen to all kinds of stocks," Einhorn said. "Last year, on one day in June, the stocks of about a dozen bankrupt companies roughly doubled on enormous volume."
Market skeptics see other signs of a possible bubble. One of the most widely noticed came .....
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