Bloomberg Review: Matt Levine's Money Stuff

Ask your investment, budget, and other money related questions here
Post Reply
User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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..

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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.

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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.

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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.

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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.

User avatar
Eureka
Posts: 224
Joined: Fri Jun 10, 2016 11:03 am
Location: Copenhagen, Denmark

Re: Bloomberg Review: Matt Levine's Money Stuff

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

Nice thread, keep it coming!

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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:

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

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..

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Thu May 04, 2017 7:09 pm

2017-04-03
https://www.bloomberg.com/view/articles ... h-managers

CDS.
There's one other amazing thing in the opinion. Good Hill's missing collateral was $22 million, but it was awarded $90 million by the court. The extra $68 million was interest, at a rate of 21 percent per year. That seems pretty high! How did they get that number?
...
So ... when it knew it was suing, Good Hill set up a special purpose vehicle to hold its litigation claims, promised investors a 20 percent return on that vehicle, and then demanded that 20 percent cost of capital back in the court case. That might be cleverer than the note restructuring, so it makes sense that it was rewarded more richly.
Smart cookies..

Stuff like this just makes me wonder where the chips will fall in the next crisis, whatever it ends up being. American financial industry's experts seem to be the most cunning in the world, with European ones being a bit wanting.
Active vs. passive.
There are two basic models for how the rise of passive investing will affect active mutual funds. One is a cyclical equilibrium model in which underperformance by active funds will push people into passive funds, which will push valuations away from fundamentals, which will create opportunities for active investors, which will lead to outperformance by active funds, which will push people back into active funds. (And then vice versa.) The other...
Anyone have some good recommendations for active funds? I wouldn’t mind investing in one that makes sense. From what I understand most good active funds are limited to millionaires or being in the right social circle.


2017-04-04
https://www.bloomberg.com/view/articles ... corn-votes
Fiduciaries, whatever.
"At Navient, our priority is to help each of our 12 million customers successfully manage their loans in a way that works for their individual circumstances," said its chief executive officer (on Medium). But when the Consumer Finance Protection Bureau sued Navient for steering borrowers into forbearance plans that were bad for them, Navient said, nah, just kidding:
Borrowers can’t reasonably rely on America’s largest student loan servicer to counsel them about their many options, Navient said on March 24 in a motion to dismiss the case, because its primary role is, after all, to collect their payments. “There is no expectation that the servicer will act in the interest of the consumer,” Navient said in response to the litigation filed Jan. 18 by the U.S. Consumer Financial Protection Bureau.
I mean, generically, no, there isn't. But when you keep saying that you will, it does create a little bit of an expectation, no?
:lol: :lol: :lol: ;_; ;_;


2017-04-05
https://www.bloomberg.com/view/articles ... del-errors

not much I found interesting/new.


2017-04-10
https://www.bloomberg.com/view/articles ... d-indexing

ditto. index, bond memes.


2017-04-11
https://www.bloomberg.com/view/articles ... ss-selling
I blame the index funds.
Yesterday United Airlines provided a nice demonstration of the proposition that capitalism is built on a foundation of violence, when it summoned agents of the state to beat up a customer who insisted that United provide the service he had paid for. "Come and see the violence inherent in the system," he might have yelled, had the police not knocked him out. ("He fell," commented the police.)
...
putting out a series of blasé statements whose main message was "whatever, we are an airline, you will come crawling back."
...
If airlines compete solely on price, some passengers will get beaten up. "Investors seem impressed by the sadistic commitment to cost control," comments Matt Klein. "By auctioning off overbooked seats, economist James Heins estimates that $100 billion has been saved by the airline industry and its customers in the 30-plus years since the practice was introduced." Ryanair would introduce Beating Class if it could save money.

Anyway blah blah blah United should have run a fair auction and only removed people voluntarily at agreed-on rates of compensation, says the Economist, but of course from United's perspective that's not true. Why pay more to rescind a passenger's ticket, when you could just call in the cops?
:lol: :lol: :lol:
Wells Fargo.
Anyway the details of the measurement sound just horrifying:
Regional bank-wide sales-reporting processes included frequent rankings against individual, branch and regional sales goals, and against one another. Witnesses frequently cited daily and monthly “Motivator” reports as a source of pressure. ... Circulation of the reports — and their focus on sales-based rankings — ramped up pressure on managers, such that some “lived and died by” the Motivator results.
If a giant corporation calls anything a "Motivator," you know it is going to be terrible.
Crumbling quotes.
We hypothesized that traders were building probabilistic models to predict price changes far enough in advance to circumvent the protection of the speed bump. Naturally their predictions would not be perfectly accurate, but they could likely gain an edge by predicting some price changes say 1 or 2 ms before the actual change solidified.
A lot of what people in market-structure debates refer to as "front running" is actually this: Computerized traders figure out that "they could likely gain an edge by predicting some price changes say 1 or 2 ms" in advance. They build probabilistic models to predict price changes, and act on those models, and get them right more often than wrong, but in any case always faster than people without those models. And the slower people complain about being "front-run." It is a maddening abuse of terms.

That's not IEX's fault, of course. The rest of the paper is about how IEX can use some of the same predictive algorithms to thwart the fast traders' predictive algorithms. ("We can fight math with math!") Which is fine: People can build predictive algorithms to take advantage of price changes, and other people can build other predictive algorithms to avoid being taken advantage of by price changes, and so forth, in saecula saeculorum. (Some people think that stock exchanges, as opposed to investment firms and brokers, shouldn't be in the business of building those algorithms, but that ship has mostly sailed.)
I never explicitly knew this is what happens. Makes sense.

The note about stock exchanges should be building the algorithms maybe has sailed for stock.. but it may be alive in crypto-coin exchanges.
People are worried about the third derivative.
Nah, but give it time.
Anybody get the joke? Feels like he thought it was an appropriate topic and added it here for comedic effect and plans on reporting on it in the future.


2017-04-12
https://www.bloomberg.com/view/articles ... tleblowers
United.
"Boycotting United to fly another airline is just what United's index-fund owners want you to do," I joked on Twitter.
...
Elsewhere, Tyler Cowen thinks notes that "due to social media it will be increasingly difficult to write and enforce retail contracts with legal meanings very different from their 'common sense' meanings." That seems like important straightforward progress to me, but I suppose there is a Straussian reading. And what about smart contracts?
:D Matt sounds like a real hoot.

That last bit is re-assuring, at least for those of us happy to participate in online witch burnings.
Inscrutable AI.
In investing, you know, if you have a box that produces money when you press a button, you should probably just keep pressing the button and let someone else worry about the deep meaning of what the box is up to.
More comedic relief.
People are worried about bond market liquidity.
In the olden days, you'd think that role -- providing liquidity to investors by selling them what they want and buying a closely-related substitute that they don't want -- would be taken by banks. Now, it's Microsoft.
Well, enough for today!

User avatar
Eureka
Posts: 224
Joined: Fri Jun 10, 2016 11:03 am
Location: Copenhagen, Denmark

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by Eureka » Fri May 05, 2017 6:19 am

Wow, well done! Thanks

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Fri May 05, 2017 9:16 pm

Even though I need to catch up, I am going to start limiting the posts to one article per post (>=per day). Basically I wouldn't want to read the wall of text in each post even though you should be able to skim it based on bold section titles and my own commentary. It hearkens back to slow news/opinion dissemination :)

2017-04-13
https://www.bloomberg.com/view/articles ... end-shares
Listing standards.
A slightly odd fact about global capital markets is that public companies with dual-class shares -- where insiders can have a majority of the votes without a majority of the economic interest in the company -- are allowed in the U.S., but not in a lot of other places. This means that founders in other places who want to go public but retain control of their companies often want to list in the U.S. The other places don't love losing those listings, which leads to a bit of a race to the bottom. "Hong Kong Exchanges & Clearing Ltd. in January said it would look again at dual-class shares
...
Of course BlackRock and OTPP buy lots of U.S. stocks, including dual-class ones. They just feel bad each time they do it.

My natural inclination is to disagree with them on the listing-standards point: Companies are essentially negotiations among entrepreneurs and investors, and if big grown-up companies want to sell stock without selling control, and big grown-up investors like BlackRock and OTPP want to buy that stock without getting control, then why should regulators stop them?
...
Of course index providers can say no, so they have become a popular place to contest governance issues...
it's a weird role for them: Really they're just in the business of writing down lists of stocks in a country, or a sector, or the world; they're not in the business of evaluating proper corporate governance.

But stock exchanges -- for some reason -- are in that business. There is a long tradition of corporate governance standards being imposed by stock exchanges, as "listing standards," a sort of seal of approval that listed companies have been screened by the exchange and found to be plausible investments...

And of course keeping a stock off an exchange is one way to keep it off an index. I mean, index methodologies vary, but in general a stock listed on no exchanges won't be on many indexes, and a stock listed on a U.S. exchange might be left off some Asian indexes....If investing is increasingly about buying everything in the universe, defining the universe becomes crucial. Listing standards don't just limit what stocks investors can buy; they also limit what stocks investors have to buy.
So we could have BlackRock and Vanguard starting their own indexes and their own exchanges. Hmmm.
Desk commentary.
Research is heavily regulated, needs to be shared with all clients at the same time, and needs to reflect the analyst's honest beliefs. Sales is ... sales. Desk commentary is ... also sales. Research is sales too, of course -- why would a bank pay for research if not to sell stock? -- but a more genteel and indirect form of sales.
...
If you only send your commentary to big investors who know how the game is played, it's fine. If you send it to retail investors, it is heavily regulated.
Damn regulation! Rigged to benefit the rich, I say.
United.
...
In that vein, reader Ben Appen sent me an email that I think is the best analysis I have read of the United fiasco, so I will just reproduce it for you here:
In general, it’s hard to make a lot of money selling a commodity. Airline seats are mostly commodities—most buyers want the cheapest path to where they’re going. So that means the impact of brands on pricing strategy is low.

By contrast, if brand importance were high, everyone could charge a little more. Any brand strategy is effectively an agreement among industry members to somewhat avoid the other firms’ customers and to charge higher prices because they aren’t competing directly. Apple and Dell have different strategies and can enjoy higher margins than if they competed directly.

So the United incident has (possibly) introduced more brand sensitivity into a market which was historically a commodity market. On this theory, American can now charge a little bit more because there are some passengers who care enough about not being beaten that they will pay for that privilege. And United can charge a little bit more because American no longer has to be a low cost competitor, they can be the “we don’t attack our customers” competitor. And if United is the only player in the “low cost” end of the market, they don’t have to be quite so low cost as they did in a more competitive, less branded world.
...
And United is going to give refunds to everyone who watched that guy get dragged off a plane, which seems a little random, but okay.
I will be flying United internationally soon... booked before all this craziness... because it was the lowest flight with acceptable parameters! Hopefully it's not actually operated by United and rather by one of their international partners, I haven't checked but there is a decent chance.

It seems to me that American is choosing to lower it's brand as much as United is, though, so I doubt we will see what the letter mentioned.
Blockchain blockchain blockchain blockchain.
...
My point was that, as we have discussed, early smart contract experiments have tended to privilege the technical language of the contract -- the "immutable, unstoppable, and irrefutable computer code" -- over the reasonable expectations of the parties. The United situation shows some of the problems with that: It turns out that people don't always want companies to enforce the fine print of their contracts literally.
...
But today Cowen linked to a paper by Omri Ben-Shahar and Lior Strahilevitz of the University of Chicago on "Interpreting Contracts via Surveys and Experiments," whose basic point is that if you want to know how to interpret a consumer contract, you can just go ask a bunch of consumers. Combine a smart contract with an online polling mechanism -- say, a contract-interpretation captcha -- and you're getting somewhere.
Cool! And actually the idea (using oracles as the judges) has been around since Smart Contracts first started. More heavily automated smart contracts (ethereum) don't rely on these inputs so much.. but they have to come from somewhere and I'm not really familiar with that bit.. I sort of assume it is the same type of oracle as would be used for Bitcoin. I guess the new thing here is saying "OK, instead of some trusted third party oracles like some ESPN proxy for sports, let's just do it democratically amongst... some crowd". The tricky bit may be figuring out who the crowd is (only participants in the contract? anyone holding the crypto-currency? some oracle proxy? blind surveys a la Mechanical Turk? Uber for Surveys? actually one of my best app ideas (2 years ago?) I've ever had is right in this realm.. shhh, I'm saving it for a hackathon or startup..).
Things happen.
Donald Trump: "I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me."
:lol: :lol: :lol: Though I agree it seems quite strong. Only thing obviously stronger right now are crypto-currencies and the bull market ;)

Should I buy some physical stuff before the next crisis or wait until it's on sale during the crisis? I've thought that even though the price of some commodities may fall on the paper/digital markets, they could be rare in real life (like expired futures for copper may not get delivered?). I forget/wasn't aware of how the dollar/euro did against physical items in the financial crises..

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Sun May 07, 2017 5:26 pm

2017-04-17
https://www.bloomberg.com/view/articles ... recruiting
Activism.
He had been at a private company and had worked under pressure from private-equity investors. Public markets, he said, enabled Tejon Ranch to operate under much less short-term pressure, and to take a longer-term perspective. We were flabbergasted: Many companies go private or stay private to avoid the short-term pressure that public markets can create.
Your model could be something like:
  1. Public investors have short time horizons but also short attention spans. If you miss your quarterly earnings expectations, you'll get some irate phone calls, but if you let them go to voicemail there's a good chance, they'll probably forget to call again. If you succeed in distracting from disappointing short-term results by explaining that you have a long-term plan, they'll never remember to hold you to that plan.
  2. Private investors have longer time horizons but also pay attention. They don't necessarily care about quarterly earnings, but if you fail to execute on the long-term plan, they'll eventually fire you.
This suggests that if you actually have a good long-term plan you should probably be private, ceteris paribus, while if your plan is to entrench yourself and hope no one notices, that probably works best in public markets.
So certain personalities, planning tend to be better to lead private versus public (and presumably something else for a subsidiary?) companies.
Is college recruiting illegal?
I do kind of want to see what would happen to the financial industry, and the college industry for that matter, if on-campus recruiting became illegal. I suspect it's about as likely as index funds becoming illegal.
Affirmative action for age?

Personally I've always wondered what it would take for someone very young to become a Vice-President or CEO (outside of starting something from scratch) or otherwise someone who has some power to implement company strategy. I've known a number of persons in their 20s with far better strategic/market thinking than many senior workers..
Insider trading.
I like to mention cases like that here, because:
  1. I never tire of reminding you of the Second Law: If you have inside information about an upcoming merger, don't buy short-dated out-of-the-money call options on the target. The SEC knows that trick.
Just an FYI I guess. So what's the better way to make the price market efficient? :D

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Tue May 09, 2017 2:57 am

2017-04-18
https://www.bloomberg.com/view/articles ... d-fx-fixes
Portlandia.
But no, it is real. Portland "will likely see a drop in revenue of $4.5 million a year when the $539 million now invested in companies is moved to federal bonds and other places." "We can rest assured in Portland that our money won't be funding prisons, pipelines and the occupation of Palestine," says an activist named Amanda Aguilar Shank, who is going to be disappointed when she learns what federal bonds are used for.
:D

2017-04-19
https://www.bloomberg.com/view/articles ... nd-bubbles
People are worried about unicorns.
And here is the story of Tilt, which was never quite a unicorn (it topped out at a $375 million valuation, and ended up selling to Airbnb for $12 million this year), but which is otherwise a classic unicorn story of Y Combinator,
I had completely missed this! I'm a pretty big fan of CrowdTilt.


Welp, not much interesting in those two!

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Wed May 10, 2017 2:41 am

2017-04-20
https://www.bloomberg.com/view/articles ... -red-flags
ETFs and inefficiency.
The basic idea of the index-funds-are-Marxists theory (not to be confused with the index-funds-are-monopolists theory!) is that index funds make markets less efficient by causing stocks to move in lockstep: If everyone buys stocks because they're in the index, then no one is doing the fundamental work to decide which stocks are worth more than other stocks....
...bid-ask spreads rise 1.6 percent and absolute returns grow 2 percent.

Fewer trades occur, so liquidity in single stocks deteriorates, raising transaction costs. That only further discourages professional traders, so the price discrepancies remain without the informational arbitrage to close the gaps.

Making matters worse, the reduced interest in individual equities also results in less analyst coverage, the researchers argue.
This model -- that no one trades stocks because they are trading ETFs instead, which makes liquidity in the stocks rarer and more costly -- is very familiar from our endless discussions of people worrying about bond market liquidity. One classic bond-market-liquidity story is that if everyone trades bonds by trading ETFs, rather than the underlying bonds, then underlying-bond liquidity will dry up and the ETFs will present a "liquidity illusion" to investors.
Pity even greater the mutual funds..

Would be cool to actually understand how BlackRock/Vanguard can make moves in the market without upsetting it or having a lot of tracking error. ETFs seem to allow them more flexibility in this regard, afaict.
Things happen.
...Robo-Adviser Wants to Lend You Money, Not Just Manage It...
Looks like Wealthfront may offer loans if you have >$100,000 invested. Allegedly it is 30% of portfolio value at 3.25-4.5%. Sign me up? Sounds cheap to me. Surprised banks, brokerages don't already allow folks to do this (I mean low interest rates given some collateral x1-x3).

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Fri May 12, 2017 3:24 pm

2017-04-21
https://www.bloomberg.com/view/articles ... tgage-tech
Dark pool.
Ustocktrade tells customers on its website they will be trading with their peers, but there often aren’t enough to make that work. Unlike other exchanges, Ustocktrade never sends orders to other venues for trading. So, as the company discloses in its user agreement, clients end up doing business with a single sophisticated pro, a so-called superuser, Weeresinghe himself.
...And then their sponsors think, well, what if we had a few high-frequency traders, but didn't talk about them? Or what if we took the other side of some trades ourselves? There is a perennial dream of natural liquidity: college students, happily trading stocks with each other, leaving Wall Street out of it. But it never works out that way.
I've always considered it an obvious business plan to have such an arbitrage division or partner to provide liquidity for illiquid markets or similarly to at least "normalize/balance" the order book. What are the regulations against such things?
Sovereign Citizen.
What I love about guys like this is that they really do expose deep fundamental mysteries about the financial system. Money, financial instruments, the right of the state to tax its citizens -- at some level these are delusions. It's just that they are collective delusions; because we all believe in them, they work. They are what Yuval Noah Harari calls an "imagined reality": "something that everyone believes in, and as long as this communal belief persists, the imagined reality exerts force in the world." "Politics," writes David Graeber, "is that dimension of social life in which things really do become true if enough people believe them." Money shares in that character. That means that Shrout's project is not purely silly. "If you could convince everyone in the entire world that you were King of France," writes Graeber, "then you would actually be the King of France." If Shrout could convince enough people that the state has no power to tax them, then the state would have no power to tax them. If he could convince enough people that his $100 trillion of paper was money, it would be money.
Subjective Value Theory.

User avatar
bryan
Posts: 568
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Bloomberg Review: Matt Levine's Money Stuff

Post by bryan » Tue May 16, 2017 7:50 am


Post Reply