| Programming note: Money Stuff will be off tomorrow, back on Monday. GameStopHere is a Bloomberg article titled "A Longtime Fidelity Manager Sold GameStop, and Has Some Regrets." It begins like this: Joel Tillinghast has managed the Fidelity Low-Priced Stock Fund since it was created about 32 years ago, hunting for companies with shares that trade at bargain prices relative to their earnings potential. In 2020, a suffering video-game retailer called GameStop Corp. fit that bill.
No, look, I see where this is going, and I'm going to stop you right there. Sure, you bought GameStop below $10 per share in 2020, you sold it at like $49 in January, it closed yesterday at $219.34 and you have regrets. But ask yourself this: If you owned GameStop today, at $219.34 per share, up more than 1,000% year-to-date, in the FIDELITY LOW-PRICED STOCK FUND, wouldn't they have to fire you? Wouldn't you spend all day every day smiling wanly at bosses and colleagues and interns and salespeople and family members and journalists who keep coming up to you giggling and saying "so, how are those low-priced stocks doing these days? Got any good ones?" Or: "Hey Joel, I forget, if a company is losing money but trades at 200 times estimated 2023 earnings, is that cheap? That's cheap, right?" Just a terrible life. No, you made the right decision. Sure you would have made more money for your clients if you had had diamond hands, but you are not running the Fidelity Diamond Hands Fund, you're running the Fidelity Low-Priced Stock Fund, and you've got to stick to your mandate. That said, if I ran Fidelity I'd totally be rolling out the Diamond Hands Fund. Give the people what they want! In Bloomberg Businessweek this week, Brandon Kochkodin writes about how meme-stock investors hate short sellers but they are an important part of the market ecosystem: Wall Street pros, on the other hand, tend to regard shorts as a necessary part of the financial landscape. They see financial markets not simply as a grocery store where you can buy things you want, but as a kind of machine for discovering correct prices. Shorts add an input—without them, the only people with a reason to have an opinion about a company would be people interested in buying or current owners thinking of getting out.
But I think that one counterintuitive lesson of the meme-stock thing is that long sellers are also an important part of the market ecosystem, and they have gone missing. A thing that often happens is that value investors think a stock is underpriced, so they buy it, and then later a catalyst occurs and the stock goes up. And if it goes up really high, so that the value investors think it is overpriced, they will sell it, which will prevent it from being too overpriced. In a liquid market with daily prices, you get to make your investment decisions anew each day. If you bought a stock because it was underpriced and then it went up until it was overpriced, you sell it. I realize that I sound like an impossible simpleton, but this very basic process ought to keep a lid on prices. Everyone who owns the stock has some implicit reserve price, some maximum value for the stock; if the stock goes above that value they will sell. The stock can't go above everyone's maximum value; at that point everyone is a seller and no one is a buyer. But what if it does? What if all the professional value investors buy at $10 and are like "I think this is a $30 stock," and then it goes to $60 and they're like "huh guess I was a little too conservative, I will keep that quiet and congratulate myself on my foresight and huge profits" and sell the stock, and then it goes to $400? What if every research-based value-driven investor gets out, and other, uh, self-consciously non-value-driven investors keep driving up the price? Who is left to sell? The classic answer is "short sellers," but they all got blown up on the way from $10 to $200, and have quite sensibly gotten out of this stock too. In the first three days of this week, almost 17 million shares of GameStop worth about $3.5 billion have traded. That means people have sold almost 17 million shares at prices mostly above $200 per share, something like four times the price where Joel Tillinghast decided it was too rich for him and got out. Who were they? I said the other day that "the list of top GameStop shareholders is a hilarious ghost town"; virtually every professional value investor like Tillinghast seems to have dumped the stock during its wild January rally, and the top holders now are mostly a mix of index funds, insiders and options market makers. If you bought stock yesterday at $219, you didn't buy it from some deep value investor who bought it at $5 and is finally now taking her profits. You bought it from some other lunatic who paid $200 for it. (Or possibly from the company.) That is, I think, part of why the GameStop rally can last so long. There was some schedule of supply, some set of reserve prices at which every fundamental-value-driven investor in the stock would sell, and somehow the wild January Reddit-driven rally — when GameStop traded more than twice its market cap every day for three straight days and kept doubling in price — lifted every one of those offers. Everyone who was open to the possibility that GameStop might be overpriced, at any price whatsoever, sold. Everyone who's left is either locked up (insiders), utterly price-insensitive (index funds), looking for a good time and a gamble (Reddit, some hedge funds) or facilitating their gambling (options market makers). Once you blow through the maximum price on a stock, there's no reason for it to come back down. I have said things like this before, and I realize that it is exaggerated and possibly insane. You could put it differently: Professional value investors had a valuation cap at $60 or whatever, but a crowd of Reddit retail investors are smarter than they were and see value where they did not, fine. (Or: GameStop really is worth 10 times what it was worth in December, because of its new management team and the early progress on its new business plan, but traditional value investors are scared to get back in at a price that reflects that new value.) But I do think that the basic, bizarre explanation for why GameStop's stock price can stay so high and so volatile for so long is that there's no one left to sell. Ancillary businessMan that's awkward: Credit Suisse Group AG investment bankers expecting new Chairman Antonio Horta-Osorio to boost their spirits after an exodus of top talent were left disappointed during a recent meeting in London. The former Lloyds Banking Group Plc chief executive officer, in response to questions, told bankers who'd gathered in person and virtually for the event that the firm had a great wealth management business "with ancillary services," according to several people who heard the remarks. For some top dealmakers and traders, those words were perceived as a blow, the people said. The investment bank delivers more revenue than any other division at the firm and ranks in the top 10 globally. Horta-Osorio's comment could mean more than just a few hurt egos. At the annual general meeting in April he'd already criticized the bank's role in the Archegos Capital Management and Greensill scandals, pledging to take his time on a broad strategic review of the business. That's put Credit Suisse bankers across the firm on high alert as they closely parse his words for clues about his plans for the firm -- and their own futures.
Not a great sign to find out that you're in an "ancillary service." Once upon a time, the way investment banks worked is that they were unlimited-liability partnerships and the senior bankers were the partners. Everyone ran their own desks or divisions or whatever, and they tried to bring in as much money as possible, and they were differentially rewarded for doing an especially good or bad job. But everyone also knew that if one guy over in prime brokerage lost $5 billion, then they were all going to eat that loss together. It focused the mind a bit. Everyone knew that their partners' fates were in their hands, and that their own fates were in their partners' hands. It's not like you'd go snooping around in all of your partners' businesses to see what they were up to, but … you would, a little? If you had reason for concern? There would be risk committees to check up on everyone's work, and those committees would take their jobs seriously because their money was on the line. And the decision to promote someone to the partnership would be taken seriously; the partnership committee would ask not just "will this person bring in a lot of money?" but also "might this person lose a lot of money?" And then of course if someone does lose $5 billion, all the other partners chip in to pay it back, and while they are not happy about it they understand that at some level it is their fault. "We should not have made that person a partner," they'll think, or "we should have kept a closer eye on that person's business." The legal structure and culture arguably lead to a sense of collective responsibility. Now investment banks are divisions inside of giant corporate mega-banks, and as a formal legal matter a managing director in equity capital markets is not responsible for the debts of the prime brokerage division. (Nor is a managing director in prime brokerage, for that matter.) On the other hand if the prime brokerage division loses $5 billion, that's going to eat into the bonuses of the people in leveraged finance. And if leveraged finance has a great year, and if most of the other banks manage not to lose $5 billion in their prime brokerage divisions, then the leveraged finance bankers are going to feel aggrieved. "We had a great year, our competitors at other banks are getting paid well, and we're not, just because some dope in prime brokerage lost $5 billion? That's not fair!" And then they leave: While Horta-Osorio surveys the options, dozens of key rainmakers have already voted with their feet, departing for Wall Street rivals after the Archegos hit ravaged stock-based pay. Before the $5.5 billion loss, the investment bank had been resurgent, profiting from advisory and trading opportunities. Now, Credit Suisse is already paring back its hedge fund unit and cutting ties with clients, prompting speculation bigger changes are on the way. More than 50 front office employees have left since the most recent troubles began on March 1, as competitors view Switzerland's second-largest bank as fertile hunting ground for talent that otherwise would be hard to poach. … For many of the firm's investment bankers, the Archegos hit was particularly painful because it overshadowed one of the best periods for the business in years, driven by a trading boom, leveraged finance deals and the surge in SPACs. … With deal-making and trading conditions still favorable, other banks have swooped in to scoop up talent.
Yeah, reasonable. Why should some investment banker be responsible for the losses in prime brokerage? Good tax tradeHere is an argument that, if you are a young person who has just founded a potentially world-changing startup, instead of just giving yourself shares in that startup for free, you should buy them for a nominal price inside a Roth IRA. If you just give yourself the shares free and clear, and your startup does change the world and the shares end up being worth billions of dollars, one day you will sell them and pay capital-gains taxes on your billions of dollars of gains.[1] On the other hand, the way a Roth individual retirement account works under U.S. tax law is that you put money into it out of your after-tax earnings, and then when you are older you can withdraw the money — including any gains — tax-free. So if you buy your founder's shares for $1,000 in a Roth IRA when you're young, and then their value grows to, say, $5 billion, you can sell them after you turn 59 and a half and pay no taxes on the gains. Good trade! It's in ProPublica, which does not exactly pitch it as a good trade, but you can read between the lines. ProPublica asserts that Peter Thiel used this approach with his PayPal founder's shares and now has $5 billion in his Roth IRA, so, you know, that's an encouraging precedent. To be clear, though, this is not tax or legal advice, and there are arguments that it doesn't actually work: Thiel's unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren't allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as "stuffing" because it gets around the strict limits imposed by Congress on how much money can be put in a Roth. PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel's founders' shares were among those the company sold to employees at "below fair value." Victor Fleischer, a tax law professor at the University of California, Irvine who has written about the valuation of founders' shares, read the PayPal filings at ProPublica's request. Buying startup shares at a discounted $0.001 price with a Roth, he asserts, would be indefensible. "That's a huge scandal," Fleischer said, adding, "How greedy can you get?" Warren Baker, a Seattle tax attorney who specializes in IRAs, said he would advise clients who are top executives working at a startup not to purchase founders' shares with a Roth to avoid accusations by the IRS that they got a special deal and undervalued the shares. Baker was speaking generally, not about Thiel.
Still I suspect that at least some young startup founders will read this article and say "huh, this is a great idea," and go consult their tax advisers. Unintended consequencesAhahahaha oops: The Biden administration ousted the head of the Federal Housing Finance Agency after the Supreme Court ruled it was structured unconstitutionally, dealing the latest blow to investors betting that mortgage giants Fannie Mae and Freddie Mac would be returned to private hands after more than 12 years of government control. The White House decision to replace Mark Calabria as head of the FHFA paves the way for President Biden to install his own appointee to oversee Fannie and Freddie, which are regulated by the agency and back roughly half of the $11 trillion mortgage market. The Biden administration has signaled it won't be in a hurry to privatize the companies. … Mr. Calabria is a Trump administration holdover who pushed aggressively to end government control over the firms. His term was set to expire in 2024. Mr. Biden plans to replace Mr. Calabria "with an appointee who reflects the administration's values," a White House official said.
What happened is that the federal government bailed out Fannie and Freddie in 2008, putting them into conservatorship and pumping in billions of dollars. In 2012, the government amended the terms of the bailout to keep all of Fannie's and Freddie's future profits for the U.S. Treasury. Investors in Fannie and Freddie stock were understandably upset about this, and have been trying for years to reverse it. They have sued in various courts under various theories. One of their theories is that the FHFA, which administers Fannie's and Freddie's conservatorship, is unconstitutional, because its director can only be removed by the president "for cause," and the Constitution requires that the president have absolute ability to fire executive officers. If the FHFA is unconstitutional, the theory goes, then its actions — in particular its decision to give all of Fannie's and Freddie's future profits to the Treasury — are invalid, and can be reversed. (Why courts would reverse only that decision, and not everything else that has happened at Fannie and Freddie under FHFA control for the last 13 years, I don't know.) Yesterday the Supreme Court ruled that the investors were correct on their constitutional point: It is unconstitutional that the president can't fire the FHFA director without cause. But this didn't get the investors very much: The Supreme Court refused to change the terms of Fannie's and Freddie's bailouts; it sent the case back to an appeals court for further consideration but it doesn't look good for the investors. We discussed the decision yesterday. All the Supreme Court really said was, well, right, the president should be able to fire the FHFA director whenever he wants. And so today the president fired the FHFA director — a Trump appointee who was fairly sympathetic to the investors and who oversaw an amendment to the bailout that would let Fannie and Freddie build more capital — and will replace him with someone less interested in handing Fannie and Freddie back to the investors. The investors won their argument in court, but it put them in a worse position. I don't want to overstate this. My basic thesis of Fannie and Freddie is that nothing will ever change, so none of this really matters. Mark Calabria was sympathetic to the investors and still didn't manage to return Fannie and Freddie to private ownership, and the new FHFA chair will be less sympathetic and the status quo will continue. Still, oops. FateI used to say that "the fate of every Bitcoin exchange is to have its Bitcoins stolen." I used to say that a lot, because it happened a lot. I have mellowed in recent years. Some Bitcoin exchanges have gone quite some time without having all their Bitcoins stolen. I do not think that it is an inevitability that, like, Coinbase Global Inc. will have all of its Bitcoins stolen. (Though it is a risk, as you can tell from the risk factors in Coinbase's prospectus.) The industry has grown up, and the phrase "Bitcoin exchange" now evokes a regulated and professional financial institution instead of a guy with a laptop and a one-way ticket to a non-extradition country. Still there's some of that: A pair of South African brothers have vanished, along with Bitcoin worth $3.6 billion from their cryptocurrency investment platform. A Cape Town law firm hired by investors says they can't locate the brothers and has reported the matter to the Hawks, an elite unit of the national police force. It's also told crypto exchanges across the globe should any attempt be made to convert the digital coins. Following a surge in Bitcoin's value in the past year, the disappearance of about 69,000 coins -- worth more than $4 billion at their April peak -- would represent the biggest-ever dollar loss in a cryptocurrency scam. The incident could spur regulators' efforts to impose order on the market amid rising cases of fraud. The first signs of trouble came in April, as Bitcoin was rocketing to a record. Africrypt Chief Operating Officer Ameer Cajee, the elder brother, informed clients that the company was the victim of a hack. He asked them not to report the incident to lawyers and authorities, as it would slow down the recovery process of the missing funds.
Nothing inspires confidence like your financial institution saying "hey FYI your money has been stolen but whatever you do don't tell the police." I guess it's a little impressive that this is a record for "the biggest-ever dollar loss in a cryptocurrency scam." The thing is, when Bitcoin exchanges had a virtually unblemished record of always stealing their customers' money, there was only so much money they could steal. It was pretty obvious to anyone who thought about it that if they put their money into a Bitcoin exchange, the money would be stolen, so not everyone was enthusiastic about putting money into Bitcoin exchanges, and the value of Bitcoin was relatively low. Now that the industry has been professionalized, it can be perfectly sensible to put your money into a Bitcoin exchange, and Bitcoin is quite valuable. And so an old-school, steal-all-the-money-style Bitcoin exchange can steal $4 billion instead of a few hundred million dollars. Things happenJPMorgan Buys Stake in Robert Kraft's Sports-Data Company. Top commodity traders pile into the energy transition. BuzzFeed Nears Deal to Go Public Via SPAC, Eyeing Digital-Media Rollup. JPMorgan Says Grayscale Share Sales Extra Headwind for Bitcoin. Wirecard: a record of deception, disarray and mismanagement. John McAfee, Software Pioneer Turned Fugitive, Dies in Spanish Prison. "Every deal that we've been a part of has been fairly priced. Every deal that we didn't win was overpriced. Every deal we didn't see was stupid." Is unvaccinated sperm really the next Bitcoin? Drone on leash. 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] Unless of course you never sell them, borrow against them to fund your lifestyle, and eventually die, leaving them to your heirs with a stepped-up basis. If you're rich enough it's not *that* hard to avoid taxes. | 
◊↝µ〖OnLine!.〗 2020 Bhoot Pori Full Movie Online released 2020. story: Upcoming Movie By Soukarya GhosalBhoot Pori Full Movie Online. ▴Bhoo...
Post a Comment