Bloomberg Review: Matt Levine's Money Stuff

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bryan
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Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Tue Feb 28, 2017 5:58 pm

https://www.bloomberg.com/view/contribu ... w-s-levine
https://www.bloomberg.com/view/rss/topi ... -stuff.rss

These newsletters have been pretty good and has some discussion-provoking current events. Figure it could be a good, ongoing general thread here?

latest one: https://www.bloomberg.com/view/articles ... edge-funds

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Tue Feb 28, 2017 6:00 pm


what caught my eye from the lates one: search for "monopolistic behavior" (also https://www.bloomberg.com/view/articles ... -confusion has some similar comments)

for Buffet buying up lots of shares of competing companies.. in a similar way that index funds do (see links "precisely" and "concern")! We've had discussions on this topic (okay.. that's as much as I wanted to search for.. basically the topic of index fund popularity, efficient market hypothesis, etc) but this discussion always seems to focus on individual investor's expected future return, boring, instead of other effects like de facto cartels forming, a "self-operating anticompetitive influence:"
Matt Levine wrote: > CEO of one airline, knowing that his shareholders are mostly index funds and Warren Buffett, will fulfill his fiduciary duties to those shareholders by keeping prices high and not competing too hard against other airlines, because he knows that his shareholders also own them. (He will, in this theory, be less concerned about the shareholder of limited means who owns shares only in his airline.) If the normal approach is for every shareholder to own every company in an industry, why would those companies want to undercut each other? It wouldn't do their shareholders any good.
Interesting times..

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Thu Mar 09, 2017 11:12 pm

Latest interesting/funny ones below.

https://www.bloomberg.com/view/articles ... and-quants
Here's a story about how Stanford University is trying to fund startups founded by students like Evan Spiegel, who "often hung around the offices of StartX, the school's entrepreneurial hub." Obviously. We've talked before about the recurring fad for financing college education with equity rather than debt, and really Stanford has the opportunity to be a leader in this space. Instead of charging tuition, it could just demand like a 5 percent stake in all of its students' future startups. It's a portfolio model: Classics majors would just get free classics degrees, while the guy who builds the next Snapchat would pay a billion dollars in effective tuition. I actually do not see the downside here. "Adverse selection," you say, but you are wrong; this would probably attract more potential startup founders. Young founders seem to love giving away equity in return for external validation and mentoring. They're as credential-driven as the rest of us, which is why they go to Stanford. Anyway Stanford isn't doing this -- StartX is a more conventional funding/incubator sort of model -- but it should.
https://www.bloomberg.com/view/articles ... tsche-bank
when local laws and Uber's terms of service conflict, which prevails? The local officials assumed, naively, that laws trumped terms of service. But that is antiquated thinking. In the modern era of global technological capitalism, the terms of service need to prevail universally. Otherwise you'd just have anarchy.

I mean, I guess I am kidding, but Uber probably believes that.
...
Does that prevent law-enforcement officials from bringing actions in their official capacity? Hahahaha probably. In any case, it's a valuable lesson for other startups: Make sure your terms of service say "you can't arrest us."
Satellite data... U.S. Securities and Exchange Commission used satellites to catch fraud at a home-builder
https://www.bloomberg.com/view/articles ... dist-camps
Bing!

Here's a story about how quantitative fund firm Acadian Asset Management has "struck a deal with Microsoft Corp. to use its Bing Predicts big data technology to inform its investment decisions."
...
Imagine a social network that was optimized to provide actionable data to hedge funds, rather than one that was optimized for advertising. Doesn't it seem like that would be a more useful network? A calmer one? Advertisers want engagement, reaction, emotion; investors want accuracy.
...
The mid-20th-century dream of the planned economy was that there could be some technological way to just figure out what consumers want and direct producers to supply it, without the mechanism of prices and markets.
Don't do this.
ZTE Corp. will pay $892 million in fines for violating U.S. sanctions in a "six-year-long conspiracy to acquire U.S. technology, send it to Iran and mask its involvement through a network of front companies." Don't do that, obviously, but if you do, probably don't write and preserve a memo weighing the pros and cons:
Lots of companies have periodic email auto-delete functions, though a one day auto-delete is a little aggressive. But the trick is, you don't want to put the auto-delete in after you start doing bad stuff, or particularly after you start being investigated for doing the bad stuff. If you are starting a business today, consider running all communications on Snapchat.

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Fri Mar 10, 2017 8:55 pm

https://www.bloomberg.com/view/articles ... historians
People are worried about unicorns.
We've talked before about how Slack Technologies Inc. self-consciously raises too much money, and then invests the excess in other startups. That is plausibly an arbitrage: Fundraising is too easy for Slack, and too difficult for other startups, so it intermediates their fundraising and pockets the spread.

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Mon Mar 13, 2017 7:42 pm

https://www.bloomberg.com/view/articles ... tcoin-etfs
Layering.
If the SEC is right, these guys didn't just violate the U.S. securities laws; they violated the laws of economics.
(omg, even bloggers and ex-investment bankers like Matt have some sort of respect/expectation for EMH.. :roll: )
No WinkleTF!

Remind me why anyone would need a bitcoin exchange-traded fund? If you're a retail investor and you want to own oil, it is hard. Actual oil is a pain to store; you can't just chuck it in a closet.
...
But, look. If you're a retail investor and you want to own bitcoin, then one of the following two things is true:

1) You can just do it. Bitcoin is an electronic asset. You can buy it on your computer. It doesn't expire. You don't have to store it. Just buy bitcoins.
2) You can't just do it. It's super hard. You have to buy the bitcoins from a weird exchange, and all the exchanges are constantly getting hacked or shut down for money laundering or both.
Coincidentally, I was out shopping for groceries today and spotted a Bitcoin ATM in the grocery store. It was pretty shocking to see! The shop was run by Indians, so my guess is it is primarily for international money transfers, seemingly a better option than western union etc. When the clerk noticed me standing in front of it he started telling me the ATM machine was "over there" and I was like "bitcoin! :) " I played around a little bit and it was pretty snazzy how quickly it had me in a position to buy/sell bitcoins (much faster than an online exchange and bank transfers etc). Basically you type in your cell phone number, scan your driver's license, enter a 2FA SMS code, and choose how you want to send/receive the BTC (quite a lot of options). My main gripe was the intro screen didn't have any sort of FAQ or tutorial running to show people what the hell it is and why they should care. Secondary gripe was the fee seemed to be about 5% from what I could tell (though I now recall it first asked me if I planned on buying more than $800 or so, maybe if I had said yes instead of no it would have been a lower amount).
Your Pension Check May Soon Be Coming From an Insurance Company.
Didn't get past the paywall, though. Seems interesting.

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Sun Apr 23, 2017 9:40 pm

2017-03-23
https://www.bloomberg.com/view/articles ... rmance-art
Some bond market liquidity.
generally a reminder about liquidity and pricing and valuation of the total. Gist is "fair value" is usually wrong or rather not what you think.

It's probably a good exercise/educational moment for someone to really experience illiquid markets/exchanges at least once with some skin in the game.. if we had personal finance courses in school, I would certainly incorporate this lesson.
Happy T+2 day!
standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2...
Nothing illustrates the divide between the fintech/blockchain dream of perfect transparent instantaneous linked financial markets and grisly reality...
Essentially all shares of every U.S. public company are owned by one entity, Depository Trust Co., which can transfer shares between accounts just by updating an entry in its ledger. Everything is electronic, virtual, fungible; no physical objects need to move; no complex contracts need to be negotiated. Unlike in many other markets -- syndicated loans, oil, whatever -- conditions seem perfect for near-instantaneous settlement. And yet it takes three business days from the millisecond the algorithms agree the trade to actually move the money and the shares. Soon that will be two days, which is an improvement, but sort of an underwhelming one.
Are index funds communist?
The chart is from this Bridgewater Associates "Daily Observations" note about populism[pdf], which has lots of other fascinating charts of stock markets under authoritarianism.
Couldn't copy/paste well from the pdf. Recommended reading.

2017-03-24
https://www.bloomberg.com/view/articles ... d-closings
If the vibrant growing companies are all funding themselves elsewhere, then middle-class public investors will miss out on that key engine of growth.
I've worried about this myself since basically I had any substantial amount of money to invest (5 years?). Inevitably anything I wanted to invest in would be a private business that is generally not accessible for investing by the public. It is also a worrying trend for indexers of today.. indexers' only hope is that M&A happen into public companies, that the public companies are effective monopolies/moat-builders, or to somehow buy into a security/fund/corp/etc that does this type of investing for you. This trend is not good for middle-americans (and is one con of having (NW-$home)<$1M).

Of course, there are the benefits of less public companies to consider as well (I wonder about incentive differences between private and public corps).

See especially the last two paragraphs of the section: "question some of the basic expectations of shareholder rights that have been established for the last half-century or more."

2017-03-27
https://www.bloomberg.com/view/articles ... rshmallows
Tontines.
You see a bit of that in finance too: So much of "financial technology" -- bitcoin and blockchain and peer-to-peer lending -- is really about abandoning the modern technology of finance and returning to a simpler and more primitive time. (But with computers.)
That description is apt. To expand: with new technology we change underlying assumptions of what works or what does not work. What is feasible or not. It just so happens that the recent advent of some "financial technology" is a pretty big deal and will result in the revisiting of old ideas.
Marshmallow spoofing!
sellers of commodity items on Amazon are constantly monitoring and updating their prices, sometimes hundreds of thousands of times a day across thousands of items,
so much of what you read about computerized markets suggests that all this aggregating of rationality leads to irrationality, that individually rational decisions by a bunch of computers tend, when aggregated by the market, to lead to collectively absurd results.
and it reminds me of a cool hack I've heard.. basically a consumer was wanting a specific item on Amazon (textbook?) but the price was too high.. so ta made a dummy seller account and listed the items ta needed at lower prices.. eventually the other sellers lowered their prices and ta bought the items from them while cancelling any orders ta had received in the meantime.
The Somali shilling.
Old legitimate 1000 shilling notes and newer counterfeit 1000 notes are worth about 4 U.S. cents each. Both types of shillings are fungible...
The exchange rate between dollars and Somali shillings is a floating one that is determined by the cost of printing new fake 1000 notes...
Well, but: What does it mean to be a "counterfeiter"? Classically, counterfeiters print notes that compete with notes printed by a central bank, hoping to capture some of the central bank's seignorage revenue. The Somali counterfeiters don't have a central bank to compete with, don't try very hard to imitate the "real" notes, and don't make much seignorage revenue either -- just enough to pay for the economic value they provide.

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by Eureka » Sun Apr 23, 2017 10:19 pm

Nice thread, keep it coming!

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Mon Apr 24, 2017 12:33 am

Sure, sorry I fell behind; I'll try to catch up!

Feel free (anyone) to start short conversations here based on what you find interesting, or if something really strikes hold of you a new thread is cool. A lot of this stuff is good water-cooler talk.

2017-03-28
https://www.bloomberg.com/view/articles ... cious-edge
Neural networks.
I enjoyed this diagram of how hedge funds use neural networks to find trading signals:
complex, simplified...
Weak-form market efficiency tells you that, in the long run, you can't make any money doing this, but that doesn't mean that you can't make a nice living while waiting for the long run to arrive. What weak-form efficiency is really telling you is that the computer models will gradually get better and better at mining historical prices for information about future prices, until there's no more useful information to be squeezed out of that data...
One problem with all of this data is that it is hard to know if it will predict future stock prices. That is I suppose where the neural network is useful. But a bigger problem is just recognizing it as data, and then getting it...
Maybe that's why a lot of these top MIT kids are getting hired into finance? They are the ones that know all about those gosh-darn computer black boxes that give you "Money!" Combine that w/ probability theory and you have ways to make Real Money!

The last bit from the quote is why I think companies that already have the data are in the best position to profit via present/future price arbitrage. But for now those companies just sell ADs. If only they had a finance/trading/investment/insurance division run like GS/hedge fund, they would be making way more buku bucks.
Edge.
Even if Icahn did leak his plans to Walters, it's not at all clear that that would be illegal. This drives people crazy, but: It is perfectly legal to trade with inside knowledge of your own intentions. Not only that: Your intentions are your business, and if you want to tell your buddy about them so he can trade too, you can go right ahead. Trading on material nonpublic information is only illegal if that information was obtained in breach of a duty to someone.

That's not legal advice...

They make it seem like Walters liked to trade when he knew things that no one else knew.
Which you and I know is fine. Trading when you have information that other people don't have is the definition of informed investing. It's what makes people spend millions of dollars on analysts and research and corporate access and neural networks. The purpose of capital markets is to incorporate information into prices, to create incentives for people to find out information and then trade on it.
Nice. I wonder how the legal advice would differ? Maybe one advantage of taking a company public instead of staying private (popular topic, mentioned before in this thread) is that it gives insiders more opportunities to profit from information asymmetry. :lol:
Me yesterday.
Investment managers might genuinely want to avoid non-voting stocks like Snap's, but have no choice if it is included in the indexes. As the world becomes more indexed, the index providers will increasingly become the main arbiters of corporate governance standards. Which is kind of a weird role for them?
So folks that make indexes will have some new powers? What if Vanguard and BlackRock start to define their own indexes :D :lol:

2017-03-29
https://www.bloomberg.com/view/articles ... mer-relief
BlackRock.
...fundamental equity mutual-fund managers should be at least as worried about their jobs as truck drivers are.

But in another sense this is pretty weird. Investing is not really about finding patterns in a bunch of numbers. I mean, that is what it's about, but not at a deep level. Deep down, it's about finding good ideas, about understanding what humans will want and who will be best situated to give it to them...

But the computer doesn't have to. The market does that: People -- entrepreneurs and lenders and venture capitalists and, eventually, public-market stock investors -- make those evaluations, and express those evaluations in the form of prices, and ultimately those prices become the numbers that the computers examine to find patterns. The market is an amazing computer for turning all of those people's individual decisions into aggregated numbers. It just turns out that, if you plug an actual computer into the market, it makes better use of those numbers than the humans do.
But those trading computers will have access to way more capital than active trading humans will, won't they? Hello Black Swan. He had just said in a previous post:
>all this aggregating of rationality leads to irrationality, that individually rational decisions by a bunch of computers tend, when aggregated by the market, to lead to collectively absurd results.

:shock:

> what humans will want and who will be best situated to give it to them
Ever heard of Skynet? Do people think Musk is joking about the singularity? Computer systems will have rights, purchasing power, wants, etc eventually. I mean, aren't corporations already people? It's only a matter of time until machines are people too. I haven't heard of a convincing argument that precludes machines from being people (other than non-practical semantics). For better or worse, advent of Bitcoin (fungible digital value) pushed all of this stuff closer to viability.
Consumer relief.
...it is harder to explain how the banks harmed the borrowers by giving them money that they didn't pay back.

Nonetheless there was a strong intuition that the borrowers had been harmed, and so when the big banks reached their big mortgage-fraud settlements with the government, those settlements tended to include not just fines and repayments to investors, but also lots of money designated for "consumer relief."...

This generally sensible idea ran up against some practical problems. For one thing, some of the banks that did bad mortgage things never actually made mortgages... they didn't have any consumers to relieve...

But there's another practical problem, which is that the financial crisis was almost a decade ago. There just aren't that many busted subprime loans from 2007 that Deutsche and Goldman can buy up and modify. So, reports Matt Scully, Deutsche has another idea: It is considering "indirectly funding new loans to subprime borrowers."
...idea was that the big banks harmed consumers by giving them subprime loans, and should now help those consumers by writing off some of those subprime loans. Deutsche Bank might instead atone for its role in the subprime crisis by making new subprime loans.
More like comic relief. :shock:

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Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Tue Apr 25, 2017 4:50 am

2017-03-30
https://www.bloomberg.com/view/articles ... x-opinions

not much here. On the recurring topic of "Should index funds be illegal?" BlackRock put out a pdf that says "don't worry about it," which of course makes you worry about it..

2017-03-31
https://www.bloomberg.com/view/articles ... -car-loans
Subprime car settlements.
the basic theory is that Santander (through dealers) made loans to consumers that it knew they couldn't pay back, and then sold those loans to investors...
Taking money from investors and not giving it back seems like fraud, while giving money to consumers and not getting it back seems like a ... present? ...
But the states' real concern is with the consumers, not the investors: Of the $22 million Massachusetts settlement, $6 million will go to the state and $16 million to consumer relief. Zero dollars, it appears, will go to the investors who bought Santander's loans.
I wonder how that consumer relief gets divvied out, considering what we read earlier about 2008 consumer relief from GS.
Elsewhere in WhatsApp.
For most of human history, people could have business conversations without worrying that one day a prosecutor would be able to search a transcript for uses of the word "Muppet." But email and instant messaging created, in Dan Davies's words, a "golden age" for regulators in which "traders have inadvertently made wrongdoing by people in their ranks as easy as possible to detect." That golden age happened to coincide with a global financial crisis, and a lot of wrongdoing was detected. The lesson that banks learned from this episode was that they should build better tools to monitor email and detect wrongdoing earlier. The more intuitive lesson that bankers learned was that they should start using WhatsApp.
I thought corps/govs just setup auto-delete for emails older than 30d, 7d?
Advertising.
The standard internet model of putting ads next to everything is under pressure, as advertisers are realizing that "everything," on the internet, means mostly racist videos.
Most likely it means Google will continue to push its indexing capabilities or web technology. Will we get a semantic web that we were promised? Will it only exist inside of Google's data centers?
How should you make banknotes?
Bank of England is making polymer banknotes out of animals, which is controversial, so it's thinking about making them out of palm oil instead, which is also controversial...
It's almost like there is no such thing as ethical consumption under capitalism. England should convert to using bitcoins, which are made out of electricity. But so much electricity.
p.s. nation states could bootstrap something with varying degrees of similarity to Bitcoin without the electricity..

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