Robo-MarcusYou could have two basic views of Goldman Sachs Group Inc.'s Marcus consumer-banking product. One is that it represents Goldman's move into boring consumer banking: Shareholders put a higher multiple on stable recurring consumer revenue than they do on volatile trading profits, so Goldman is giving them what they want by building a boring consumer business. (To make sure it's boring, it has a pleasant just-call-me-by-my-first-name brand, Marcus, to distinguish it from the more formal Messrs. Goldman, Sachs & Co.) The other is that it is a trick, and Goldman is going to lure consumers and then use their money to do horrifying structured products. Disclosure, I used to work at Goldman, structuring horrifying products (I kid, they were fine, fine-ish), and part of me is always rooting for the trick answer. It would give me immense pleasure to report to you that Goldman was selling synthetic tranches of its Apple-branded credit-card debt to unsuspecting German regional banks and then also betting against those tranches etc. etc. etc. you know all the tricks by now. Or: The Wall Street firm on Tuesday is set to unveil Marcus Invest, a low-cost digital platform that allocates and automatically rebalances individuals' wealth across portfolios of stocks and bonds based on the models developed by the firm's investment-strategy committee. Marcus Invest will be tucked into Goldman's existing Marcus consumer-banking app and website. The offering will help round out a somewhat disjointed set of Goldman banking products, which include savings accounts, unsecured personal loans and budgeting software that carry the Marcus brand and a credit card with Apple Inc. that doesn't. … Goldman is a relative latecomer to the field of digital investment advice, which is estimated to reach $449 billion in assets under management in 2021, according to Cerulli Associates. Startups such as Betterment LLC and Wealthfront Corp. pioneered so-called robo-advisory strategies more than a decade ago. Every other big U.S. bank and brokerage has some version of an automated-investing option, though few disclose how much in assets those businesses have gathered. False starts marked Goldman's earlier attempts to expand into retail investing. In 2016, the firm acquired an online retirement-savings startup called Honest Dollar for about $20 million but never fully embedded it within Goldman's broader suite of services. … Historically, Goldman targeted customers with more than $10 million in assets for its wealth-management services, but Marcus Invest is designed for more mainstream investors who can meet an account minimum of just $1,000. Goldman's high-touch private wealth advisers charge clients annual advisory fees that can exceed 1% of the balances of its smallest accounts, but for Marcus Invest's digital advisory services customers pay 0.35%.
First of all, I continue to think that Goldman's acquisition of Honest Dollar is one of the funniest deals in the history of mergers and acquisitions; if I ran Honest Dollar I would have insisted that the combined company take the Honest Dollar name. Every discussion about Goldman's reputation for the last five years—including this one—would be so much better if we were talking about Honest Dollar's reputation for tricky financial products. Second, if you work at Goldman designing horrors,[1] should you be trying to set up a meeting with the investment-strategy committee that oversees the Marcus robot? "I see that you're steering our retail customers to a balanced 60/40 portfolio of stocks and bonds, but have you considered that they might be happier, and we might make more money, with a portfolio of 50% stocks, 30% bonds, and 20% convoluted structured products?" In my capacity as an objective journalist, I will say that I assume Marcus's robot will allocate retail customers' money to a balanced portfolio of low-cost diversified exchange-traded funds or something boring like that. But in my capacity as a former derivatives marketer at Goldman Sachs, I will say that I would have loved to have a Goldman robot to stuff products into retail accounts. Not … not that I even built retail products, or that this would have been much practical help in my business. It just would have been fun to think about. You could while away whole days just dreaming up things for the robot to stuff into retail accounts, ways to take strange hard-to-hedge risks from Goldman's books and package them into retail allocations. At the Goldman Sachs I knew, people would have. Just for fun! Maybe in like a decade Marcus will be a big, staid, consumer-focused bank, and its relatively small investment-banking arm will cling embarrassingly to its past swagger, and if you work there you will answer the phone "Goldman Sachs" and it will sound pretentious, like people at Citigroup who insist on saying they work at "Salomon."[2] But right now Goldman is mostly Goldman, and Marcus is the out-of-character side project, and there is a race between Marcus's tendency to infect Goldman with boring banking and Goldman's tendency to infect Marcus with aggressive complexity. By all accounts Marcus is winning, at least in a localized way; Goldman may be mostly Goldman but Marcus is holding its own, being boring and friendly and consumer-y and not at all full of evil derivatives burbling under the surface. That is probably good for, you know, Marcus's customers (sensible transparent products!), and Goldman's shareholders (reliable consumer earnings with low reputational and balance-sheet risk!), and the stability of the financial system and so forth. It is bad for me as a commentator on financial nonsense, and as a former Goldman derivatives structurer with a highly developed sense of nostalgia. Couldn't it be a trick, just a little bit? Anyway, further disclosure, I have a Marcus savings account. Maybe I'll try the robo-adviser. If they want to stuff me into complex derivatives with huge opaque markups, I will understand. Honestly I'll be touched. Happy Bitcoin 50,000 DayBitcoin is up: Bitcoin blew through another milestone, surging past $50,000 for the first time as the blistering rally in the largest cryptocurrency continues to captivate investors worldwide. The world's largest cryptocurrency jumped as much as 4.9% to $50,548 and is now up about 70% so far this year. Bitcoin pared its gain after setting the record high. Ether, a rival crypto, hit a record on Friday and is up about 140% year-to-date. ... Tesla Inc.'s announcement that it added $1.5 billion in Bitcoin to its balance sheet was the most visible recent catalyst, sending the price up 16% on Feb. 8, the biggest one-day gain since the Covid-19 inspired financial markets volatility in March. Optimism grew after Mastercard Inc. and Bank of New York Mellon Corp. moved to make it easier for customers to use cryptocurrencies, while Bloomberg reported Saturday that Morgan Stanley may add Bitcoin to its list of possible bets.
We have talked a lot recently about the Reddit-fueled rally in meme stocks like GameStop Corp. One thing I have said about this rally is that it reflected Reddit traders' correct understanding of a simple market dynamic, which is that if they all bought the same stock at once then it would go up. So they did. Institutional Bitcoin adoption, as we have also discussed, has a somewhat similar dynamic: Each time a big institution says "we like Bitcoin now," Bitcoin goes up, because widespread mainstream institutional adoption is clearly bullish for Bitcoin at this point. So if you are a big institution or corporation, you can make some free money by (1) buying Bitcoin, (2) announcing "we like Bitcoin now," (3) watching Bitcoin go up, and (4) selling the Bitcoins you bought for a quick profit. (Or keep them as a bet that other institutions will do the same thing and you'll make even more profits.) This dynamic, separate from any particular institutional decision, is good for Bitcoin: If it's in every big bank's and corporation's short-term financial interest to quietly buy some Bitcoins and then noisily make a show of adopting Bitcoin, then a lot of them will, which will have the effect of pushing up the price (both because of their buying and because of their announcements). Unlike meme stocks, there is no underlying business, no cash flows that do or don't make the price make sense: The price of Bitcoin makes sense or not purely as a social fact; if there are "fundamentals," they are things like "widespread mainstream adoption," which you can provide. "The fundamentals of Bitcoin are strong, look, Morgan Stanley is buying some," Morgan Stanley could plausibly say, after buying some Bitcoins. So it might as well do that. With the meme stocks the natural thing was to worry about the endgame for that process; you can't have a stock price that is divorced from fundamental value forever. With Bitcoin, you ... can? Like if the endgame for Bitcoin was "universal adoption by corporations and institutions as a digital store of value," then that sounds like a good and permanent and somehow fundamental result? Meanwhile: "Elon Musk, who's been a vocal supporter of Dogecoin, said there's too much concentration of the coins among its major holders and he will support them if they sell their coins." I don't want to know any more about that, thanks, but if you do you can click the link. GameStop hearingMark your calendars I guess, ugh: [Friday], Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, announced the following witnesses for the February 18 full Committee virtual hearing entitled: "Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide." - Vlad Tenev, Chief Executive Officer, Robinhood Markets, Inc.
- Kenneth C. Griffin, Chief Executive Officer, Citadel LLC
- Gabriel Plotkin, Chief Executive Officer, Melvin Capital Management LP
- Steve Huffman, Chief Executive Officer, Co-Founder, Reddit
- Keith Gill
The virtual hearing will be held on February 18 at 12:00 PM ET. Additional witnesses may be named.
Keith Gill is just "Keith Gill." Not "Keith Gill, Former Financial Wellness Educator, MassMutual." Not "Keith Gill, aka 'Roaring Kitty' on YouTube, aka 'Deep Value,' But With an Extra Bad Word Inserted, on r/WallStreetBets." Not "Keith Gill, Renowned Trader and Possessor of Diamond Hands." I wonder how often people get called to congressional hearings just by their name, with no title or descriptor. That is fame. "Oh hey Ken Griffin, I feel like I've heard that name, lemme look at your name tag, oh you run Citadel, that's cool. Me? I'm Keith Gill. Yeah, the Keith Gill." I am going to go for a nice walk in the park when this thing happens on Wednesday. Imagine a less edifying hearing than this. "Mr. Griffin, isn't it true that you are front-running Robinhood's orders? Mr. Plotkin, isn't it true that short selling is evil and risky and un-American? Mr. Tenev, isn't it true that Mr. Griffin is front-running your orders? Mr. Gill, isn't it … are you wearing a headband? How did you get a plate of chicken tenders into this hearing room?" By the way, notice who is not invited to this hearing. You might think that a hearing about GameStop would feature … I had to look it up again, but George Sherman, the name of the chief executive officer of GameStop Corp. is George Sherman. Nobody from GameStop will be at the GameStop hearing. "Mr. Sherman, isn't it true that your company sells video games at the mall during a pandemic?" It would make the hearing even less edifying. Whatever the GameStop hearing is about—and I am afraid to find out—it's not about GameStop. Elsewhere, here is another article about "GameStop Investors Who Bet Big—and Lost Big." I keep waiting for articles with titles like that in which the main characters were tricked into buying GameStop shares without fully understanding what was going on, put in money that they couldn't afford to lose, and as a result were financially ruined. But the actual stories keep being about people who bought GameStop shares knowing exactly what was going on, risked their gambling money, lost it and as a result were like "ehh I guess that would have been more fun if I made money." The lead anecdote in this story is about "a 25-year-old security guard in Virginia" who "started investing four years ago after deciding he wanted to retire young" and "eats a lot of rice and lives with his dad" to save money. He put $20,000 into GameStop—"I really believed in that hype, which was an awful thing to do"—and is down almost 80%. "Once the pandemic is over, he hopes to move back to his native Philippines, live off savings and start a charity. The GameStop loss set those plans back about six months, he said." His GameStop losses have delayed his retirement; instead of retiring at like 26 he'll have to retire at 26 and a half. Or here's this guy: Before the pandemic, Patrick Wesolowski checked his portfolio once a week. Then the clients of his Chicago-area dog-walking business stopped taking vacations and started working from home, crimping his income and leaving him with lots of free time. With business sluggish, the 31-year-old started spending more time researching stocks to include in his $15,000 portfolio. He "lurked" on WallStreetBets, reading about other investors' wild bets but not posting much himself. "It's like reading 'Florida Man' news headlines with a Wall Street twist," he said. In recent months, Mr. Wesolowski found himself picking up his smartphone to check his Fidelity Investments brokerage-account balance more often. He followed the frenzy around GameStop, and when shares were approaching $300 decided to put in $3,000. Afterward, he checked his portfolio on his phone every 10 minutes. At first, watching the stock drop made him feel queasy, but then he got used to it. "If I lose it, I lose it. I'm OK. It's like going to Vegas," Mr. Wesolowski said. If he still had that money, he said, he might have put it toward a personal splurge like a vacation.
Remember this is an article about "GameStop Investors Who Bet Big—and Lost Big." But the stories are not about elderly retirees who lost their homes because they thought GameStop call options were a safe investment. They're about a dog walker who will not be going on vacation during a pandemic because he went to a website that he characterizes as "'Florida Man' news headlines with a Wall Street twist," found a fun gamble, said "it's like going to Vegas," and gambled his vacation fund. I promise, reporters would love to print tragic stories about the GameStop mania! The House Financial Services Committee would love to hear from people with tragic stories! Huge efforts are being made to find the tragic stories, and so far it's all people who are like "well I knew this was dumb but I thought it'd be funny, and it was." I honestly think that the House Financial Services Committee would learn more from talking to the dog walker than they will from Ken Griffin, but we do not live in a particularly rational world. Hopefully Keith Gill will be able to give the committee the "I thought it would be funny, and it was" perspective, though to be fair he also thought he would make money, and he very much did, so he is not exactly representative. What you want here is not to hear from the person who saw GameStop's potential early, set up a great trade, made a ton of money and had fun. What you want is to hear from the people who piled into GameStop late, made a dumb trade, lost a ton of money and … well, what you want to know is whether they also had fun. Some of them surely did? It's hard to regulate that. Incidentally GameStop closed at $52.40 on Friday, up 2.54% from Thursday's $51.10 close, which was down 0.2% from Wednesday's $51.20 close, which was up 1.77% from last Tuesday's $50.31 close. It opened today at $52.66; as of 11 a.m. it was at about $50.61. Those … all those numbers start with a 5? True story, this is the first time GameStop's stock price started with the same digit five days in a row since Jan. 20, when it closed at $39.12. (In fact between Jan. 20 and Feb. 9 its closing price only once started with the same digit two days in a row, $90 and $92.41 on Feb. 2 and 3.) If the long-term result of this is that GameStop is a $50 stock, that will be a big change from the start of the year, when it was a sub-$20 stock. Elsewhere: "GameStop Mania Is Focus of Federal Probes Into Possible Manipulation," of course. Huh! This arrived a little too late for Money Stuff today but I promise we'll talk about it tomorrow: Citigroup Inc. unexpectedly lost a legal battle to recover half a billion dollars it sent Revlon Inc. lenders, after the embarrassing blunder forced it to answer to regulators and tighten its internal controls. U.S. District Judge Jesse Furman in New York on Tuesday ruled that 10 asset managers for the lenders -- which include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management -- don't have to return more than $500 million that Citibank said it mistakenly transferred in August while trying to make an interest payment. Furman found that "to believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of nearly $1 billion would have been borderline irrational."
I … disagree? It would have been correct! That is in fact what happened. And while Citigroup has perhaps not made this particular mistake before, it has made lots of big mistakes. The thing about "the most sophisticated financial institutions in the world" is that that mostly means "the biggest financial institutions in the world," and if your financial institution is big enough and lasts long enough it will eventually do every conceivable dumb thing. "Wire people $900 million by accident" is not among the dumbest possible things that Citi could do, or even really among the dumbest actual things that Citi has done, and in some probabilistic sense it was inevitable. Good for the funds for whom it actually happened. What an absolutely hilarious result. Here is the opinion, which I have not yet read. Here is what I wrote about the case last month; I said "I would guess Citi will eventually win this one," so, uh, sorry about that. (I suppose it could still appeal.) Congratulations to the distressed-debt funds who owned the Revlon loan and now have "get paid by accident and then refuse to return the money" as a weapon in their arsenal. I do not expect it to be useful all that often, but, again, given enough time surely it will come up again. Wrong ARK SPACGood lord this is every single thing at once: On Feb. 5, a new blank-check or special-purpose acquisition company began trading. The SPAC's name, Ark Global Acquisition Corp., is similar to that of superstar fund manager Cathie Wood's firm, ARK Investment Management LLC. But Ark Global Acquisition Corp., based in Nashville, Tenn., has no connection to Ms. Wood or her New York-based firm. The SPAC's prospectus says it will "focus on US-based disruptive technology companies that we believe have significant growth prospects and the potential to generate attractive returns." The SPAC, trading under the ticker symbol ARKIU, has also requested the tickers ARKI and ARKIW. It gained nearly 10% in its first three trading days.
ARK is the hot investment manager of the moment, and SPACs are the hot investing structure of the moment, and "this thing sounds like this other thing so investors are confused" is the hot investing ... mistake … of the moment, and here they all are. Echelon Corp. was acquired in 2018, leaving the ELON ticker free, and I honestly can't believe it's lasted so long, that is just absolutely free money lying on the ground, I am going to start the Excellent Levine Operating Newco SPAC this afternoon and watch the money roll in. Me elsewhereOn Friday I joined John Authers and Tara Lachapelle to discuss the GameStop aftermath. You can watch it on Twitter. Things happenMillions Lose Power in Texas as Deep Freeze Sows Market Chaos. Natural Gas Skyrockets Again to $500 as Blackouts Spread in U.S. Oil Prices Rally as Cold Blast Hits Texas. U.S. Energy Crisis Deepens With Nearly 5 Million in the Dark. Riskiest borrowers make up biggest share of junk-bond deals since 2007. How the Stock Market Works Now: Elon Musk Tweets, Millions Buy. A Week Inside the WallStreetBets Forum That Launched the GameStop Frenzy. London's status as a financial centre isn't as secure as some might think. "MicroStrategy intends to use the net proceeds from the sale of the notes to acquire additional bitcoins." Chinese microlending is getting weird and dangerous. What Was the Wing? 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] "Horrors" is my shorthand for, you know, complex derivative products with weird payoff profiles and generous non-transparent economics for Goldman. I do not want to claim that this term is in widespread use at Goldman or in investment banks generally, though nor am I the only person ever to use it. Fabrice Tourre, a former designer of horrors at Goldman—he was the fall guy for the Abacus synthetic collateralized debt obligation—famously called them "monstruosities." [2] One day I should write down a list of, like, the cool names for each big bank. Clearly the best reason to go work at Credit Suisse Group AG is so you can answer the phone "First Boston." And then the cool people will be like "oh hey, you're cool too," and you'll feel cool, and the uncool people will be like "I thought I was calling Credit Suisse?" and you'll scoff at them and feel even cooler. | 
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