How's Goldman Sachs doing?If you are a midlevel investment banker taking advantage of a quiet summer weekday to have a long leisurely lunch at a Hamptons restaurant, and you see the chief executive officer of your bank sitting two tables away, what is the move? My instinct is definitely along the lines of "put on a hat and sunglasses, scuttle to the bathroom with your head down, climb out the window, catch the next helicopter back to the office and never eat lunch again," but I can see arguments the other way. A key attribute of successful financiers is boldness; you've got to act like whatever you are doing is the right and only way to do it. Why not strut right up to the CEO and say, "Hey, good to see you here, try the burrata"? I mean, he's in the restaurant too, right? You are just two masters of the universe enjoying lunch in the Hamptons; your being in the same restaurant proves that you have the same good taste and control over your schedule and work-hard-play-hard approach that he has. He is in the restaurant because he is powerful, and you are in the restaurant because you are powerful; you are, briefly, on equal footing, and you should make sure he knows it.[1] But, no, with Goldman Sachs Group Inc. CEO David Solomon, it seems as if my original instinct is the right one: Few things annoyed Solomon more last year than an encounter with a junior employee in the Hamptons. The Goldman Sachs boss has told lieutenants how the underling walked up at a restaurant, introduced himself and pointed to associates with him -- in the middle of a workday. The tale has become the CEO's go-to anecdote when he vents about his mostly-empty offices: proof that remote work has run amok. Some who've heard the story note the apparent disconnect. The boss is perturbed by bumping into staff while he himself was spending extended summer weekends in the Hamptons at a luxe seaside rental. Solomon's time there even made national news after he deejayed a concert where attendees flouted social-distancing guidelines, leaving New York state officials fuming.
That is from this article by Bloomberg's Sridhar Natarajan and Shahien Nasiripour about Solomon's year running Goldman in a pandemic. Apparently he doesn't like people working from home. Disclosure, I used to work at Goldman, under Solomon's predecessor, Lloyd Blankfein, whom I never ran into in a restaurant.[2] I write sometimes that big investment banks are socialist paradises run for the benefit of their workers, and I suppose I got that idea at Goldman? Goldman went public in 1999, but it retained some of the sensibility of a private partnership; in particular, its senior managing directors are quasi-officially called "partners." I wrote about the partnership last week, analyzing it as a mechanism for supervising and motivating bankers. But of course it is also a statement about ownership. In a private partnership, like a law firm or a traditional old-school investment bank, the partners own the firm, and the firm is run for the benefit of the partners. In a public corporation, like, technically, Goldman, the shareholders own the firm, and the firm is run for the benefit of the shareholders.[3] Goldman's use of the term "partner," and its self-conscious retention of aspects of partnership culture, was a way of saying to shareholders: This is our fun little club, and we'll let you buy a stake, but don't forget that it belongs to us. And it was a way of saying to employees: This is our fun little club, and maybe if you work hard and make us a lot of money we will invite you to join it one day, and then your life will be good and you can have long leisurely Hamptons lunches. The partnership was a clue that Goldman was in fact a collective run for the benefit of (some of) its employees. When I wrote about the partnership last week it was because of a story that Solomon was de-emphasizing it and trying to turn Goldman into a more normal public corporation. Similarly, Natarajan and Nasiripour write: When the board ended CEO Lloyd Blankfein's 12-year reign in 2018, it swapped the former trader's affability for the investment banker's more exacting approach. Solomon winnowed the bank's fleet of prestigious partners and took a hard line on costs. "This is the first management team in a long time that actually pays attention to the shareholder," said John Thornton, a former Goldman president. ... Solomon is a rare executive atop Goldman who already had a thriving career before he made his way to the Wall Street giant in 1999. Unlike predecessors, he's less attached to the Goldman halo and has spent his time running the once-famed partnership more like a regular corporation -- less fraternal and more commercial.
The old approach was that you didn't pay attention to the shareholders; you made sure that the partners were happy and productive and assumed that shareholder profits will follow. The pitch to shareholders was not "we will maximize profits and your share of them"; it was "we will create a band of fat happy partners who bring in lots of money, and that will be better for you in the long term." The new approach is profits: Despite rankles, griping and defections, the bottom line at Goldman looks good. Net income rose 12% to $9.5 billion last year, despite billions in penalties for the 1MDB bribery probes. That helped send Goldman's market capitalization soaring to $126 billion -- up 43% since Solomon took over. More than 70% of analysts covering the stock recommend investors buy it -- the strongest endorsement in 10 years. When Solomon announced full-year results in January, some of those analysts were particularly impressed with the restraint he showed in managing expenses, keeping a lid on employee compensation after the banner year.
"'Keeping a lid on employee compensation after the banner year' is not a sustainable strategy for a firm whose assets walk out the door every night," tweeted pseudonymous investment banker "Epicurean Dealmaker," and I suppose that is the traditional justification for the partnership and socialist-collective views. The value of an investment bank consists almost entirely of the talent and effort and creativity of its bankers and traders; revenue is created from scratch each quarter by bankers and traders going out and hunting new deals. Keeping them happy — treating them like the owners — is the only way to make shareholders rich in the long run, even if it's a pretty indirect way. If you are going to de-emphasize the partnership culture and focus on cost control, I think it must be because you don't believe that as much anymore? I think it's because you have looked around and said, look, our investment bankers and traders bring in revenue in part because they work at Goldman, not because they're so special; they're selling the capacities of the firm rather than doing their own personal magic. The value is created by the seat, not the person sitting in it, as trading managers sometimes say. Also the Goldman of 1999 had very different business emphases from the Goldman of 2021; proprietary trading (smart traders making concentrated bets with the bank's money) is out, and online retail banking is in. The assets of an online retail bank don't walk out the door every night. The assets of an online retail bank come in from the website.[4] Goldman has built an app to pitch mergers; it doesn't walk out the door at night, or take lunch breaks. It has a robot to invest its retail customers' assets. It is more of a tech company, with enduring intellectual property, than it used to be. It is perhaps just a bit less reliant on its bankers and traders than it used to be. Maybe it doesn't have to treat them like partners. In other Goldman news, to demonstrate its commitment to sustainability and to get "advice and insight across a broad spectrum of topics, from strategic development to the management of climate risk," Goldman will nominate the chief financial officer of Royal Dutch Shell Plc to its board of directors. That's the Goldman I remember! NFT StuffHere is a good Planet Money episode from Alexi Horowitz-Ghazi and Mary Childs about non-fungible tokens. I wrote last week that "I have mostly resisted writing about non-fungible tokens (NFTs), because they are not so much financial news as they are, uh, art news," but since then I have stopped resisting. I love art news, for one thing. But also this is pretty much a newsletter about finance and the absurd, and NFTs are the leading modern way to combine finance and the absurd, but on the blockchain. What's not to like? What I particularly like about the Planet Money episode is that it does treat NFTs mainly as a story about the art market. An NFT is, loosely speaking, a way to record ownership of some asset or object on the blockchain; a work of digital art, for instance, can be sold as an NFT. You buy the token and own the thing, or you buy one of the limited non-fungible tokens and own part of a limited edition of the thing. Exactly what that ownership consists of is a little vague. So we talked on Thursday about a Christie's auction of a work by Mike Winkelmann, the digital artist known as Beeple. It sold for $69 million, but you can view the actual images that make up the work for free on Beeple's Twitter. Anyone can look at the art any time, and if you "own" it — if you bought the NFT — you can't stop them. It's a weird form of ownership but not, I think, that weird, for the art world. Childs says: The literal benefit of what you get out of the thing kind of doesn't matter. The utility is knowing that you own it and, to some extent, everyone else knowing that you own it. It's sort of like how your name could be on a little plaque at MoMA under some beautiful, important piece of art that you lent to the museum, except thanks to the blockchain, thanks to the ledger, that plaque at MoMA can now be visible to the entire world.
I think that's right. I said on Twitter, "NFTs are a new form of tradable ostentation rather than a new form of tradable ownership." If you have made your millions in the incomprehensible-to-many cryptocurrency markets (the buyer of that $69 million Beeple is a pseudonymous crypto speculator called "Metakovan"), you might as well spend them becoming a patron of the incomprehensible-to-many NFT art market. You can put your little plaque on the Beeple, and everyone whose opinion you care about can say "huh, this guy seems fancy," and that is what you are buying. It is a nice sort of art-world concept, ownership disconnected from, uh, actual ownership. On Twitter, Conor Sen proposed the analogy: "What's more valuable, going to Harvard or being able to say you went to Harvard?" Disclosure, I went to Harvard, and I enjoyed that as an aesthetic experience; like, I got drunk on the quad and made lifelong friends and took a class where I translated Latin prose into Greek and had a special key to a special reading room in a big library. But there's no doubt that that is a somewhat archaic and unusual form of aesthetic enjoyment. Possibly like hanging oil paintings in your living room? Whereas the Harvard diploma is fairly straightforwardly translatable into money and social status. Possibly like NFTs? One has to be careful about this, though, because the NFT concept is entirely disconnected from traditional notions of ownership. It's not just that, like, the owner of that Beeple can't stop other people from looking at it, or that the owner of an NBA Top Shot basketball highlight can't modify it, commercialize it or display it in an offensive way. It's also, like, how do you know that the non-fungible token you bought corresponds to the digital object you think you "own"? Sometimes the answer is that the correspondence is certified by some traditional gatekeeper: Metakovan bought the Beeple NFT from Christie's, and Christie's is an established and trusted art auctioneer, so Metakovan can reasonably believe that Beeple actually sold the NFT through Christie's and will get the bulk of the proceeds. Or NBA Top Shot appears to be "officially licensed" by the National Basketball Association, and you know from other sources — from copyright warnings on basketball broadcasts, not from the blockchain — that the NBA owns the video of its games, so you know that you are somehow buying official ownership — or quasi-ownership, or whatever it is — of the Top Shot highlights. But the basic thing that an NFT is is a string of digits on a particular blockchain. If you buy the NFT, you have an indisputable claim to own that string of digits on that blockchain. But there is not in general a guarantee that that string of digits actually "corresponds to" the asset or object that you think it does, or that the person selling you that string of digits has any off-blockchain ownership claim on the asset. You need some sort of off-blockchain verification of that; some intermediary that you trust needs to do something to assure you that the NFT has some correspondence to the underlying thing. The blockchain can't do that for you.[5] And so there has been a wave of what you might call not-officially-licensed NFTs? Here is a digital artist tweeting that "someone is selling my artwork on [Rarible]," an NFT platform[6]; "It's 100% stolen and NOT me. Buyer beware." Beware of what? The buyers weren't buying anything except a string of digits, really; they're still getting those whether the artist is involved or not. Or: There is a company called "Global Art Museum" that claims it plans to take open-access works from the collections of real art museums and "mint these works on the blockchain and share any revenue we receive from sales or rental of these NFTs with the museums." The Rijksmuseum owns some paintings, it digitizes them and distributes them online, and then some NFT entrepreneur jumps in and says "aha we've made a token of this painting, buy it from us!" Why? They don't own the painting. They own the NFT, because they minted it, but that's kind of trivial; anyone can mint an NFT on anything. So, more straightforwardly, here's an NFT of the Brooklyn Bridge. If you buy this NFT, you own the Brooklyn Bridge, on the blockchain, har har har har har. "Know ye that this tokenized object entitles the holder to the representation of the Brooklyn Bridge depicted herein," it says. There do not seem to be any bids yet. Or the philosopher Justin E.H. Smith created a series of tokens corresponding to concepts like "Dialectical Materialism," "Solipsism" and "The Type/Token Distinction."[7] Does he own those concepts? No. If you buy the tokens, do you own those concepts? Also no. (But you own the tokens.) Why would you buy them? Well, in this case, because it's funny and you're in on the joke. But in other cases people might buy NFTs because they believe in the story that NFTs are a good way to patronize artists, and that many NFT platforms contain a royalty feature in which a percentage of each secondary-market sale is paid to the original artist. And that story is roughly true! That is a thing that can happen, if the token happens to have the right correspondence to certain real-world attributes. But nothing in the nature of the token guarantees that. Elsewhere in NFTs, here's a story about rumors of market manipulation and wash trading in the NFT market, why not. (NFTs are an extension of the art market's interest in patronage and provenance, but they are also an extension of the crypto market's interest in speculation and trading.) And here is a New York Times review of that Beeple. ("What distinguishes Beeple's digital imagery from other 'non-establishment' art is the violent erasure of human values inherent in the pictures, and how happy his cryptofans are to see them go.") Tesla people movesHere is an 8-K that Tesla Inc. released this morning: Effective March 11, 2021, Jerome Guillen, President, Automotive, of Tesla, Inc. ("Tesla") transitioned to the role of President, Tesla Heavy Trucking. … As Tesla prepares to enter the critical heavy trucks market for the first time, Mr. Guillen will now leverage his extensive background in this industry to focus on and lead all aspects of the Tesla Semi program, including the related charging and servicing networks.
Makes sense! New role, new title. Here is another 8-K that Tesla also released this morning: Effective as of March 15, 2021, the titles of Elon Musk and Zach Kirkhorn have changed to Technoking of Tesla and Master of Coin, respectively. Elon and Zach will also maintain their respective positions as Chief Executive Officer and Chief Financial Officer.
Makes no sense! No new role, but new titles just because they are funny. (It is unclear if Musk remains the "Nothing of Tesla," as he previously announced.) I hope they do this every Monday. "Effective as of March 22, 2021, the titles of Elon Musk and Zach Kirkhorn have changed to Assassin-Emperor of the Galactic Reach and Golden Hand of the Dragon's Trove, respectively. Elon and Zach will also maintain their respective positions as Technoking and Master of Coin." Sure! Sure! Sure, sure, sure, sure, sure. Sure! Everything is like this now, huh? Elsewhere in Tesla news, everything is securities fraud: A Tesla Inc. investor sued CEO Elon Musk and its board in Delaware, claiming Musk has exposed the company to billions in potential liability and market losses by continuing to send "erratic" tweets, despite a settlement with regulators requiring pre-approval of his social media activity. "Further unchecked tweeting by Musk" could "have severe ramifications on the company's ability to secure financing," and it "drives out the very voices in the company meant to stand up to him and protect" investors, the complaint says. The 105-page derivative lawsuit, made public Friday in Delaware Chancery Court, accuses the electric vehicle maker's board of failing to rein in Musk's behavior online, even as he has repeatedly violated a 2018 settlement with the Securities and Exchange Commission.
Counterpoint, unchecked tweeting by Musk has made it easier for Tesla to secure financing than pretty much any company in history? We talked in January about how Tesla did two different $5 billion at-the-market offerings last year; retail investors are uniquely enthusiastic about paying up to fund Musk's vision. We talked last month about my "Elon Markets Hypothesis," the notion that proximity to Elon Musk is the main source of value in modern financial markets. I was kidding, of course, but also … not? The guy can make stocks or cryptocurrencies go up or down with a tweet; he has harnessed the modern retail investing Zeitgeist with ruthless efficiency. Surely Tesla's positioning as the Elon Comedy Hour has something to do with that? Surely if he just kept his head down and made cars and never tweeted nonsense or gave himself silly titles, people would not enjoy owning Tesla stock so much, and would not pay so much for it? Sure sometimes he tweets securities fraud, but that is a minor quibble. It's not fun if it's not exciting, and a little scary. DIAMOND! HANDS!Yes yes yes yes yes: Bank of America stays negative on GameStop (NYSE:GME) after taking in the news that Ryan Cohen will lead a team to focus on the technology and e-commerce transition. … BofA also addresses the wildcard that GameStop could buy back its own shares. "GME currently has a significant cash position which we expect to be used to pay down debt and repurchase shares. However, with the risk that free cash turns negative over the next few years, earnings support from capital return will ultimately fade and likely be overwhelmed by persistently declining operating earnings."
I assume that Bank of America Corp.'s analysts are thinking, like, if GameStop Corp.'s stock goes back down below $20, the company might opportunistically buy some back. (It is in the mid-$200s now.) But I can dream, can't I? What if GameStop announces earnings later this month and is like "by the way we are spending $100 million on $800-strike call options expiring this Friday, WHAT'S UP"? Wouldn't it be a little tempting? It's insane, obviously, but surely the deep meaning of the Elon Markets Hypothesis is that perception is everything, retail enthusiasm is a company's most valuable asset, and a little insanity can be a valuable thing. You spend $100 million on $800-strike weekly options, Reddit goes crazy with glee, the stock triples, the options still expire worthless, and the next week you rip off a billion-dollar at-the-market offering and your retail investors line up to give you cash because you have proved that you are one of them. This is not conventional corporate finance advice but that doesn't mean it's wrong. Everything is like this now! In other GameStop news, apparently a lot of Reddit WallStreetBets posters have been spending their GameStop winnings on adopting gorillas through the Dian Fossey Gorilla Fund. Here's a mountain gorilla named Ishimwe who was adopted by "GameStop 3/12 200C." (GameStop closed at $264.50 on Friday, so those $200 calls paid off.) Good for them. This is both funny and nice! FOMO fundSure why not: The last few weeks have seen a flurry of ETFs that are attempting to capitalize on the dizzying rotations that have characterized the markets in 2021. In the latest effort, Collaborative Investment Series Trust has announced that it has a FOMO (Fear of Missing Out) ETF in registration. It says it will track "securities that reflect current or emerging trends." What does that include? Apparently, just about everything: stocks anywhere in the world, as well as SPACs, other ETFs, derivatives, volatility products and both leveraged and inverse ETFs. Matthew Tuttle, the CEO of Tuttle Tactical Management and the man who runs the actively managed fund behind FOMO, says he is trying to answer a crying need in the market: "You have SPACs, you have Cathie Woods stuff, Gamestop stuff. If you are an average investor, you can try doing it yourself and look at many different products, but there is nothing that pulls it all together. We are going to be in social media, hedge funds, SPACs, ETFs, and stocks."
Everything is like this now, huh? Things happenFrom Crypto Art to Trading Cards, Investment Manias Abound. Stripe's Value Jumps to $95 Billion, Becomes Top U.S. Startup. Behind Greensill's Collapse: Detour Into Risky Loans. Inside Iconiq: How Mark Zuckerberg's banker built a secret Silicon Valley empire and made billions. Cathie Wood profile. Short Sellers Boost Bets Against SPACs. Biden Eyes First Major Tax Hike Since 1993 in Next Economic Plan. Bitcoin Falls Back After Weekend Rally to Record Above $61,000. Battered China Traders Sell Engagement Ring, Grandpa's Watch. "It is only newsletter." Hot pigeon. 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] I think often of the Goldman Sachs commandment: "Important people like to deal with important people. Are you one?" This feels related. [2] By "under" I just mean that Blankfein was CEO when I was there, and sort of setting the tone, not that I worked directly for Blankfein. In fact my reporting line probably went up through Solomon for most or all of my time there, not that I ran into him in restaurants either. [3] This is not *strictly* true; the shareholders don't own the firm in the same way that, like, I own my car. And the executives of the firm can have priorities other than maximizing shareholder value. Still these are traditional things to say, and roughly correct. [4] Technically mostly its liabilities — deposits — come in through the website, but you know what I mean. Disclosure, I also have an online savings account at Goldman. [5] I mean, it *could*. You could imagine, for instance, a country in which copyright law was implemented through blockchains, and an NFT would carry copyright with it, or would at least be demonstrably linked to the copyright holder. It's just that the U.S. in 2021 is not a country like that. The way you would find out that your country was like that would be by, like, the president making an official pronouncement saying "we're on the blockchain now"; there's no way to prove it solely on the blockchain. [6] He actually tweeted "Rareable," which seems to be the name of a custom jewelry website, but he is talking about digital art sold as an NFT so I assume he meant Rarible. [7] Also "The Idea of a Physical Object" and "A Physical Object," two tokens that "may not be sold separately." Also "The NFT of All NFTs" and "The NFT of All NFTs That Are Not NFTs of Themselves." | 
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