Free Back in the olden days, the way stockbrokers worked is that you would walk into your broker's office, and he'd offer you a cigar, and you'd chat about whether this Lindbergh fella was gonna make it to Paris, and then you'd tell him to buy you 100 shares of Consolidated Amalgamators, and he'd write the order on a ticket and hand it to his errand boy, and the errand boy would run across the city to the stock exchange where he'd hand it to the floor broker, and the floor broker would jump up from the shoeshine stand and push his way to the center of a big crowd and give a complex series of hand signals to a specialist indicating that he wanted to buy the stock for you. I mean I assume it went something like that, I don't know, I wasn't there. The point is it was fairly labor-intensive and high-touch. For this they'd charge you something like $39 on your 100-share order, and it seemed like fair compensation for all the running around. The way stockbrokers work today is that you open up a website, or an app on your phone, and you hit a button to buy 100 shares of stock, and a series of wires carries your order from your computer or phone to the brokerage's computers, and then it keeps right on going to the computers of a high-frequency trading firm that pays your brokerage to receive your order, and the trading firm sells you the stock. No human at your brokerage firm or anywhere else will ever notice your order, or do anything about it, and the marginal cost of executing the order—considering that the trading firm is paying your broker for it—might be negative. Even this understates the change, because the actual way that stock brokers work today is that you keep some cash in your brokerage account to fund potential trades, and the broker earns interest on that cash and pays you less than it earns, and all the trading stuff is almost irrelevant. We have talked before about Patrick McKenzie's excellent post on "How Discount Brokerages Make Money," and the short answer is "net interest income"; Charles Schwab Corp., for instance, gets 57% of its net revenue—more than enough to cover all of its pretax expenses—from net interest income. "The firm could literally give away every other service; discount the mutual fund fees to zero, do away with commissions, etc etc, and they would still be profitable." Asset management revenue—once you have brokerage customers, you might as well sell them your own mutual funds—is the second-biggest revenue source. Commissions are way down there; in 2018, they represented a bit less than 7% of Schwab's net revenue.[1] Knowing all this, if you want to start a stock brokerage from scratch in the 21st century, and you want to attract customers from the incumbents, it just seems like a no-brainer to charge zero dollars in commissions, right? People notice commissions; the entire point of discount brokers like Schwab is that they were started to compete with big Wall Street brokerages by offering lower commissions. (That's why they are called "discount brokers"—the discount is on the commissions—it's right in the name.) For a lot of people it is probably more rational to choose a broker based on who pays the highest rate on their money-market sweep accounts, but a lot of those people are nonetheless going to choose brokers based on commission rates, so yours might as well be as low as possible.[2] And then you make your money on the sweep accounts. You give people a good deal on the salient headline thing, and you make your profits where they aren't looking; this is obvious stuff. And so in fact the big stock brokerage that did start from scratch in the 21st century is Robinhood Markets Inc., and in fact it charges zero commissions, and it has rapidly gained millions of customers and achieved a multibillion-dollar valuation because zero is just self-evidently the right price to charge for stock trades. And there is a whole weird genre of articles that are like "did you know that Robinhood makes money in other ways," and the implication is always that Robinhood should not be making money, or that it is making money in sneaky ways, but it seems to me that Robinhood is not making any more money, or being any sneakier about it, than any other discount brokerage, plus the trades are free. It's not like Schwab is covering its costs with commissions either! But the legacy discount brokerages have not generally had zero commissions, even this far into the 21st century. This is mostly, as far as I can tell, because they used to have commissions back when that was their main revenue source—back when trading had some real costs, and when they hadn't optimized their cash-gathering and net-interest-earning abilities—so they got used to them, and 7% of revenue is still more than zero. If you can charge $9.95 per trade, you might as well do it, until someone else starts charging zero and taking your customers. Anyway that all ended yesterday and now the price is zero: On Tuesday, Schwab said it will eliminate trading commissions on all U.S. stocks and exchange traded funds. The announcement -- which was quickly matched by rival TD Ameritrade Holding Corp. after markets closed -- sent shock waves across Wall Street. Shares of E*Trade Financial Corp. slumped 16%, while TD Ameritrade lost more than a quarter of its stock market value. Schwab's share price also took a hit, tumbling nearly 10%. ... For Schwab, it's a bold, but risky move. The firm, which relies less on trading commissions than its competitors, is betting it can offset any decline of revenue by attracting more clients. It can then use their assets to generate interest income, an essential feature of its business that's come under pressure recently as interest rates have declined. I don't have much else to say about this? It is all pretty obvious? We have talked before about fees for index exchange-traded funds, which strike me as exactly analogous. You can run an ETF profitably with a zero management fee and make it up in other ways, so you probably should, because people care about the management fee and don't care so much about the other ways. If there are multiple variables that you can tweak to make yourself money, and one of them is called "the price" and is the one that everyone notices and cares about and compares, you should make "the price" zero and tweak the other variables. In five years people will be stunned to learn that online retail brokerages ever charged commissions. "To do stock trades? Like on your phone? Like just for pressing a button? Why?" We We We One popular theory of the unicorn bubble—and of other bubbles for that matter—is that markets get bubbly if they don't allow for short selling. Public tech companies, the theory goes, are subject to market forces: People who think they're good buy the stock, people who think they're bad short the stock, and the price balances their competing arguments. You can't short private tech companies, though, and in fact many private companies limit your ability to sell the stock at all, so the price reflects only the views of the company's enthusiasts at the moment of their maximum enthusiasm. If you get one rich goofball to put in $100 million for 1% of your stock, you're a $10 billion company, even if everyone else in the world thinks you're worthless, because they can't bet against you. My gut sense is that this theory is not wrong, but also not all that important. The normal way that markets make prices correct is not through short selling but through supply; if widgets get irrationally expensive then you'd expect new entrants to set up widget factories and supply widgets until the prices go down. Short selling is a special case of that general process, a convenient way for financial-market participants to add to the supply of financial assets: If you think that Tesla Inc. stock is overvalued, you can effectively make more of it by borrowing and shorting it until the prices go down. You can't exactly do that with a unicorn's stock; if you think some unicorn is overvalued, you cannot make more of its stock and short it. But if you think that unicorns as a class are overvalued, there are ways to increase the overall supply. There used to be a lot of talk (and some financial engineering) about "how can I short unicorn stocks," and back in 2016 I wrote this: It seems to me that the way to profit from a bubble is by selling into it, and that people sometimes focus too narrowly on short-selling into it. If you think that there's a bubble in private tech companies, and that venture capitalists are too eager to invest in any old random company at ludicrous valuations, then the most direct way to profit from that is: - Found some dumb startup.
- Put together some dumb pitch deck.
- Go around to some dumb VCs and get them to fling money at you.
- Pay yourself a big salary.
- Sell some of your shares on the secondary market at a high valuation.
- Quietly fold your startup when the bubble bursts.
I don't know, does it remind you of anything? We talked yesterday about this New York Magazine article about WeWork, and its founder Adam Neumann, and all the houses he still owns despite the collapse of WeWork's initial public offering. The article concludes: Neumann is no longer CEO, but he still has his role on WeWork's board, the homes in Gramercy and the Hamptons, plus a townhouse in the Village, a 60-acre estate in Westchester County, and a $21-million residence in the Bay Area complete with room shaped like a guitar. Neumann had a spectacularly embarrassing summer, but setting aside whatever lawsuits or investigations that could emerge, he's set for life. Really, no one played the post-recession economy as perfectly as Neumann did: fill acres of empty commercial real estate with armies of freelancers, tell everyone you're raising global consciousness, and walk away a billionaire. In his final town hall as CEO, Neumann argued that WeWork had "played the private market game to perfection." He was speaking about the company he would soon no longer run, but he might as well have been talking about himself. If you want, you can imagine him as a diabolical genius who explicitly set out to short the unicorn bubble and then walked away barefoot with a jaunty whistle and $700 million of SoftBank's money, but that does not strike me as necessary or accurate. My model doesn't require you to think that your startup is dumb! You don't need to worry about Neumann's personal beliefs and motivations at all, really. You can just think of him as a product of the invisible hand of the market. A lot of money was pouring into startups, there was a lot of demand, and the demand called forth supply, and the people who supplied the supply got rich; it is elemental and straightforward and has very little to do with questions like "is this a good business model?" Elsewhere, here is an intemperate and amusing interview with marketing professor Scott Galloway, who does not like WeWork. Investment banking intrigue I often say that the goal of post-crisis financial regulation is to make banks boring, and that it has been largely successful. This is arguably good if you like financial stability, but it is kind of boring if you write a financial newsletter. The good news is that making the actual business of investment banks boring does not necessarily entail eliminating personal drama at those banks. Arguably the correlation is negative; if you don't have any fun trades to do, you can keep busy by getting in bitter trivial fights with your bosses! Anyway we have talked before about how Credit Suisse Group AG had a former senior wealth-management banker, Iqbal Khan, trailed by private detectives during his gardening leave after he left the bank. This caused a scandal that led to the ouster of the chief operating officer and embarrassed Chief Executive Officer Tidjane Thiam. Pretty good drama! But Bloomberg News has the back story behind that dramatic gardening leave, which somehow has to do with actual gardening: [Thiam] was hosting a new year's drinks party. Among his 60 or so guests were many locals from the Zurich suburb of Herrliberg, along with a clutch of top Credit Suisse executives and his new neighbors -- Iqbal Khan, the bank's wealth-management chief, and his wife. Before long, it all went wrong. A remark by Khan to Thiam's partner set off a bitter feud between the two alpha males. The guest had insulted the state of the garden, according to a person who was there. Later, Thiam tapped Khan on the shoulder and asked for a word. The two went downstairs and argued before later resurfacing. "A bitter feud between the two alpha males" over the state of Thiam's garden, I love it, investment banking is the best. For a while, some people thought that this scandal might even take down Thiam, and I can't imagine a better reason for losing the high-profile and lucrative top job at a global bank than "I had to defend the honor of my garden." Elsewhere, here is an account of David Solomon's first year as CEO of Goldman Sachs Group Inc., which involved a certain amount of palace intrigue as ex-CEO Lloyd Blankfein's loyalists left and were replaced by Solomon's people. This part made me feel old: "Two Hundred West has been compared to 'Game of Thrones' for as long as I can remember," said Brennan Hawken, an analyst at UBS Group AG, referring to Goldman's headquarters. "Successful investment-banking franchises are not warm and fuzzy places. But the magnitude of the turnover has been more than I expected." Man, not only do I remember it, I actually worked at Goldman back when 200 West wasn't being compared to "Game of Thrones," because (1) "Game of Thrones" premiered in 2011 and (2) Goldman moved to 200 West Street in 2009. Back when Lloyd Blankfein became CEO and started installing his loyalists in the top jobs, you'd have to say "85 Broad has been compared to 'Desperate Housewives' for as long as I can remember" or something, it was a completely different world in investment banking back then. Libra Uh oh, several big financial companies are "reconsidering their involvement" with Facebook Inc.'s Libra consortium, which seems like a real headache for all concerned. Visa and Mastercard will have to disconnect their card networks from Libra, merchants who take Libra using their cards will have to find new providers, customers' Libra balances will have to be converted into the basket of underlying currencies, technology will need to be fixed, hahahaha no I am kidding, none of this will happen, nothing has been built yet and nothing needs to be reversed, Libra is not a thing. Visa Inc. and Mastercard Inc. and other financial partners put their name on a vague statement about how Libra might be a good thing, and then there was immediate and substantial public and regulatory backlash about the idea of a global currency run by Facebook, and now the financial partners might want to vaguely take their names off the vague thing. If you are a payments company and you want to hitch your name to a privately run world currency, there was probably a time when Facebook's involvement was a positive: Facebook is everywhere, so it has a good chance to get its currency adopted. The project's backers saw the payments-network effort as a long-shot way to profit on Facebook's 2.4 billion monthly active users. After watching popular social-media company Tencent Holdings Ltd. come to dominate the market for Chinese digital payments with WeChat Pay, some payments companies agreed to take part in Libra to avoid missing out on the next big thing. These days it seems like a negative: Facebook is hated everywhere, so it has a good chance to get its currency banned. Things happen JPMorgan cash hit Fed limits, roiling U.S. repos. The Seven-Year Auto Loan: America's Middle Class Can't Afford Its Cars. Aramco Is Set to Formally Announce Listing Plan Next Month. Opioid Settlement Encourages Sale of More Opioids, Critics Say. (Earlier.) Congressman Christopher Collins Pleads Guilty To Insider Trading Scheme And Lying To Federal Law Enforcement Agents. Banks Struggle to Sell About $2 Billion Debt for Apollo Shutterfly Buyout. CLOs Stuffed Full of Private Debt to Risky Companies Are Booming. Currencies trader sues Citi over 'malicious' prosecution. Schwarzman donation to Oxford draws criticism. RIP Robert Hunter. Surfer dogs. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] That's $685 million out of $10.1 billion; see page 67 of Schwab's 10-K. Payments for order flow were $139 million; see page 31. [2] I submit that "as low as possible" is generally "zero." Once you start paying people to trade you get weird psychological effects, people start to distrust you, they start to ask to get paid *more*; it is all messy, whereas zero is very clean. To be fair Robinhood will at least pay people for referring people to trade, so below-zero commissions are not utterly impossible, but I don't think that the norm will ever be like "we pay you $1 every time you do a trade." | 
⋗≗⋄〖Film!〗 2020 Rosas do Asfalto PelÃcula Completa En LÃnea released 2020. story: Rosas do Asfalto PelÃcula Completa En LÃnea. △∴∻Rosas do...
Post a Comment