Everything is seating chartsI could not possibly have enjoyed this Bloomberg profile of Morgan Stanley co-president Ted Pick more. It is hard to pick a favorite bit but I suppose I have to go with this one, from Pick's time as head of equities: Along the way, he gained notoriety for a unique style of leadership. After getting worked up about the size of another executive's office, feeling it was too big for his position, Pick called in a construction crew over the weekend and had the walls moved to shrink the room.
All investment-bank management should work like that. All the walls should be on sliding tracks, and each morning you come in and see how you're doing by how big your office is.[1] Bring in a big deal and you can fit a couch. Lose a big client and there's no room for your family photos. Keep losing money for a while and eventually you will be crushed in your office like that "Star Wars" trash compactor scene. But there is much else to love. Pick sometimes reads like an investment-bank stereotype, hard-charging and sweary, "known on the trading floor for his outsized personality and a fanatical devotion to Morgan Stanley." There is this: One underling recalled briefly entertaining a job offer from a rival firm after failing to make managing director. Pick snuck up behind his workstation and whispered: "If I hear you speak to them again, I'm going to crack your head." When the startled trader turned around, Pick was already strolling away, smiling. The message, the employee said, was that the boss knew he had turned down more money to stay at Morgan Stanley. He took it as motivating.
Yes well right threats of physical violence, but in a joking way, are a standard tool of investment-bank motivation. "He cracked my skull because he cared." Also here's the time Pick matched wits with Lloyd Blankfein: He's also recounted the time, more than a decade ago, when he was at a New York Rangers game -- his lifelong team -- and crossed paths with Lloyd Blankfein, then CEO of Goldman. Pick introduced himself as working for a small firm that Blankfein had probably never heard of. When Blankfein took the bait, Pick delivered: "Morgan Stanley." "If he met me that way, I would have gotten the last word," Blankfein assured when asked if he recalled the exchange. "Like telling him I never heard of Morgan Stanley or asking if they made power tools."
I think I'm going to award that one to Blankfein. (Disclosure: I used to work at Goldman and may be biased by loyalty here?) I like that he doesn't remember the exchange but nonetheless is happy to make fun of Morgan Stanley hypothetically. "Hmm, Ted Pick, doesn't ring a bell, but if he had said that I'd go to my bag of Morgan Stanley insults, would you like to hear them?" That's what it takes to succeed in this ruthless business. Also, any good investment banker has to make a choice — a series of choices really — about whether to win over clients using (1) impressive prowess in rich-people activities or (2) charming haplessness in those activities. I mean, Option 1 is the only way to go with golf; terrible golfing is not charming. But here's an anecdote from Blackstone Group Inc.'s Tony James: Pick was the reason Blackstone tapped Morgan Stanley to lead the initial public offering in 2007, said James. He illustrated that point by describing how he invited Pick to join a fly-fishing expedition after the deal, flying to the jungles of Brazil in pursuit of the famed peacock bass. Much of the group was filled with hardcore anglers wearing special gear while Pick, armed with a last-minute lesson at New York's Central Park, showed up on the boat in the Amazon decked out in leather loafers. "You've never seen anyone throw their whole body into the cast like Ted Pick," James said.
I honestly don't know if throwing your whole body into a cast is good or bad fly-fishing technique, I am not going to Google it to find out, and please don't email to tell me. I am definitely never going fly-fishing with Tony James in the Amazon so it doesn't matter, and I suppose not knowing can be part of my appeal too. Look at me, I'm bad at fly-fishing, I'd probably wear loafers in the Amazon, hire me to run your IPO, etc. Elsewhere in investment-bank seating, Goldman is back at the office today: A leading proponent of getting people back to the office quickly, as well as an amateur DJ, Goldman Chief Executive Officer David Solomon marked the end of his bank's work-from-home era on Friday by releasing a new single titled "Learn to Love Me." His bank, which has been ramping up in-person staffing for months, told employees who hadn't yet returned that they had until Monday to figure out how they're coming back. Early this morning, employees high-fived and hugged each other as they streamed into Goldman's Manhattan office in the drizzling rain. They'll be greeted by free food in the cafeteria and an array of food trucks with music blaring all week.
OopsI don't get it? A multipronged bet on AMC Entertainment Holdings Inc. boomeranged this month on Mudrick Capital Management LP, the latest hedge fund to fall victim to swarming day traders. Mudrick's flagship fund lost about 10% in just a few days as a jump in AMC's stock price unexpectedly triggered changes in the value of derivatives the fund held as part of a complex trading strategy, people familiar with the matter said. … Jason Mudrick, the firm's founder, had been trading AMC stock, options and bonds for months, surfing a surge of enthusiasm for the theater chain among individual investors. But he also sold call options, derivative contracts meant to hedge the fund's exposure to AMC should the stock price founder. Those derivative contracts, which gave its buyers the right to buy AMC stock from Mudrick at roughly $40 in the future, ballooned into liabilities when a resurgence of Reddit-fueled buying recently pushed AMC's stock to new records, the people said.
Basically the trade was (1) long stock plus (2) short out-of-the-money calls. Buying the stock gives you exposure to the upside; selling the calls caps your upside — but at $40, and what were the odds of AMC going to $40? — and cheapens the position. Good, fine. But then Mudrick … sold the stock and … did not close out the short calls? On June 1, AMC disclosed that Mudrick Capital had agreed to buy $230.5 million of new stock directly from the company at $27.12 apiece, a premium over where it was then trading. Mudrick immediately sold the stock at a profit, a quick flip that was reported by Bloomberg News and that sparked backlash on social media. ... Inside Mudrick, executives were growing apprehensive as the AMC rally gained steam. The firm's risk committee met on the evening of June 1 after the stock closed at $32 and decided to exit all debt and derivative positions the following day. It was a day too late.
The stock closed at $62.55 on June 2, oops oops oops. I said at the time that Mudrick got the trade right, buying stock from AMC and immediately flipping it, but, uh, I didn't realize that after flipping the stock Mudrick was actually short. "But he kept the derivative contracts outstanding as an insurance policy," reports the Wall Street Journal, and I am not sure that that's how insurance works? It's good to be badWe talked the other day about what I called "the meme-stock cycle." A company falls on hard times, hedge funds sell its stock short, Redditors get aggrieved, they buy the stock, the short sellers get squeezed, the stock rockets to the moon, everything is weird, etc. I said that, if you are the chief executive officer of a public company, a "plan of 'I will do stuff to attract short sellers, and then try to get Redditors to squeeze the shorts, and my stock will rally to all-time highs and I'll be able to raise infinite money and become an internet folk hero' seems like a crazy strategy," but one that … can … work … now? There is a literature. Here is "How Can Bad News Increase Price? Short Squeezes After Short-Selling Attacks," by Lorien Stice-Lawrence, Yu Ting Forester Wong and Wuyang Zhao: We examine market returns following short-selling attacks, where short sellers publicly disclose the negative information that led them to short their targets. Counterintuitively, we find that for a significant proportion of these attacks (about 30%), the initial market reactions are positive. Consistent with short squeezes being a major driver of these positive returns, we demonstrate that about half of initially positive returns fully reverse over the following quarter, relative to about a third of initially negative returns, and this asymmetric reversal pattern cannot be explained by short sellers profitably covering their positions, by misleading disclosures, or by market attention. Further, short covering levels are high for target firms with initially positive returns that reverse, further suggesting that price pressure from short sellers forced to close their positions explains some of these positive returns. We find that short squeezes are difficult to predict ahead of time but may be triggered by conditions on the day of the attack, including insider purchases, highlighting the difficulty short sellers face in avoiding this risk. Lastly, short squeezes impose substantial costs on short sellers, leading to an average loss of $70 million per suspected squeezed campaign relative to estimated profits of $35 million per successful campaign.
I have mentioned a couple of times that, if you are a hedge fund, you could use this to your advantage. Schematically the trade is: - Go long a potentially meme-y stock.
- Make people think you are short (by releasing a negative research report, going partially short "against the box" and disclosing the short position, or just posting on Reddit "hey I hear XYZ Capital is short this stock, let's get 'em").
- Profit as the stock goes up.
In a world where stocks go up on bad news, you gotta buy the bad companies and then highlight the bad news. To be fair, Stice-Lawrence, Wong and Zhao find "that short squeezes are difficult to predict ahead of time," but maybe that is changing. SPAC SPAC SPAC ShaqIf you are a celebrity, the bad news is that the window for you to start a special purpose acquisition company has probably closed. Six months ago you could totally have gotten paid to slap your name on some SPAC; SPACs were launching every day, and having some actor or rapper or sports star associated with a SPAC was a good way to raise money from retail investors. Now the SPAC market is ice cold; nobody is going to go out and raise $200 million and give you a cut. The good news is that most of those SPACs are still chasing deals, the competition is fierce, and the SPACs mostly don't have good ways to differentiate themselves. Startup founders are getting an endless flood of emails saying "hi, we're Just Some SPAC, we have a pool of money that we would like to hand you, would you like our money?" The founders are not impressed. You know what would be impressive? An actor, rapper or sports star: Jedidiah Yueh, chief executive of Delphix, a data infrastructure company in Redwood City, Calif., has experienced the interest firsthand. Mr. Yueh, who founded Delphix 13 years ago, said SPACs began reaching out last summer as his business picked up in the pandemic. ... Mr. Yueh said he had met with some SPACs out of curiosity. But he quickly got the sense that sponsors were telling him whatever they thought he wanted to hear. Once they learned that Delphix was profitable, "they just switch gears and talk about how easy they are to work with," he said. He said he had stopped responding to cold pitches and created a canned response to ward off others. The investors he met with weren't the kind of long-term backers that Delphix wanted, he said. But in a nod to the trend of celebrity-backed SPACs, he added, "I would have taken a meeting with Shaq."
I just feel like there ought to be a booming secondary market for SPAC celebrities. Like if you are a big-name celebrity and you don't have a SPAC, any SPAC that doesn't have a big-name celebrity should be desperate to hire you. Some Random SPAC Inc. raised $300 million in January and is running out of time to make a deal. Its sponsor is a former executive you've never heard of. If he makes a deal, he gets stock worth 20% of $200 million. If he doesn't make a deal, he gets nothing and eats the startup costs of the SPAC. He keeps emailing startups and saying "please take this $200 million off my hands," and they keep sending him back automated emails saying "we are not taking calls from SPACs right now unless you can get us a meeting with George Clooney." As far as I know, George Clooney does not have a SPAC. Surely it is worth … $30 million? … to the founder of Some Random SPAC to put George Clooney on its board of directors? The sponsor writes a check to Clooney, Clooney takes some meetings with some founders, they agree to a deal, the SPAC sponsor gets his 20% and pays off the loan he took out to pay Clooney. It just feels like some liquidity in the celebrity-sponsor market could unlock a lot of value in the underlying SPAC market, you know? Honestly. I wrote about celebrity SPACs back in March — when they were still a live thing — and my view was that random celebrities are excellent middlemen. If you attach a bucket to Shaquille O'Neal, retail investors will happily fill the bucket with money ("ooh Shaq SPAC"), and tech-company founders will happily meet with O'Neal ("I would have taken a meeting with Shaq") to hear a pitch about taking the money. That first advantage — raising money — is probably gone now, but the second one — spending the money — is more urgent than ever. Bad dentistIn America, the stereotypical victim of an investment scam is a dentist, so it's nice to see this guy (allegedly) turning the tables: SEC Charges Dentist-Turned-Investment Adviser for Three Separate Frauds Washington D.C., June 11, 2021 — The Securities and Exchange Commission today charged Edgar M. Radjabli of Boca Raton, Florida, and two entities he controlled for engaging in three separate securities frauds of escalating size.
It's a whole random pile of stuff. He allegedly "conducted a fraudulent offering of Apis Tokens, a digital asset representing tokenized interests in" his investment fund. He had a fund called "My Loan Doctor" and "falsely represented that investor funds raised by Loan Doctor would be used to originate loans to healthcare professionals which then would be securitized and sold to large institutional investors," but actually "invested the bulk of the investor funds in unsecured and uninsured loans to digital asset lending firms." Also, fake tender offer: In the second scheme, Radjabli manipulated the securities market for Veritone, Inc. ("Veritone"), a publicly-traded artificial intelligence company, in which Apis Capital and an affiliated investment fund owned shares. On December 10, 2018, Radjabli and Apis Capital issued a press release announcing an unsolicited cash tender offer to acquire Veritone at an 82% premium. The announced tender offer, and the related forms that Radjabli and Apis Capital filed with the Commission, contained a number of materially false and misleading misrepresentations. Specifically, Radjabli and Apis Capital falsely represented that they had well in excess of the $200 million offer price and beneficially owned a 5.03% stake in Veritone. In truth, the defendants lacked the financing, or any reasonable prospect of obtaining the financing, necessary to complete the deal, and Radjabli and Apis Capital owned only a 4.6% stake in Veritone. The defendants' misrepresentations were material. Following the pre-market announcement and Commission filings, Veritone's stock price opened at $7.96 a share, a 41.4% increase from the prior day's close. Radjabli then capitalized on the scheme by selling Veritone securities and purchasing put options on behalf of Apis Capital and its affiliated fund. Ten days later, Radjabli and Apis Capital withdrew the supposed tender offer. As a result of this scheme, Radjabli generated illicit profits of approximately $162,800 for Apis Capital and its affiliated fund.
I feel like the usual way to do a fake tender offer is to put out a fake press release or SEC filing under a fake name. Like you say "Blarkrock Group has announced that it will buy Veritone at an 82% premium," and people bid up the stock and you sell yours, and (you hope) the SEC never figures out that you were the person behind Blarkrock Group. But here Radjabli did a real SEC filing using his real name and the name of his investment firm; if he was doing it just to pump the stock that seems like a mistake. Elon Musk's magic Bitcoin lampI guess technically these sentences are not logically equivalent: - Tesla will not accept Bitcoin until it is greener.
- Tesla will start accepting Bitcoin when it is greener.
I suppose sentence 1 allows Tesla to refuse to accept Bitcoin when it is greener, while sentence 2 allows it to accept Bitcoin before it is greener. Still in normal usage they are about the same. Sentence 1 means that Tesla is not accepting Bitcoin now, but will start when Bitcoin is greener. Sentence 2 means the same thing. But Sentence 1 sounds negative; it has a "not" in it; it feels like a criticism of Bitcoin. Sentence 2 sounds positive; it doesn't have a "not"; it sounds like a promise to Bitcoin. I think it'd be funny if Elon Musk just alternated tweeting out those two sentences every few days to see what happened to the price of Bitcoin? Intuitively I feel like Musk could tweet "Tesla will not accept Bitcoin until it is greener" and the price of Bitcoin would go down, and then he could tweet "Tesla will start accepting Bitcoin when it is greener" and the price would go up, and then he could keep alternating forever and we'd get the maximum possible financial drama with the minimum possible information. I have suggested before that Musk has a magic lamp and he can rub it and whisper "price go up" or "price go down" and it will magically move the Bitcoin price; this is one stupid way to do it. Anyway a month ago Elon Musk tweeted that Tesla would stop accepting Bitcoin for cars, but that "we intend to use it for transactions as soon as mining transitions to more sustainable energy," and Bitcoin went down. This weekend he said the same thing and Bitcoin went up: Elon Musk said Tesla Inc. would allow transactions in Bitcoin once mining is done with more clean energy. … Bitcoin jumped 9% on Sunday and traded at $39,580, near a two-week high, as of 8 a.m. in London on Monday. "Elon's stance seems to be moderating and providing a target that's not far away," said Jonathan Cheesman, head of over-the-counter and institutional sales at crypto derivatives exchange FTX.
Is his stance moderating? I feel like he said the same thing in May but people just forgot? I hope he will keep saying it to test out my theory. Lunch valuationWould you pay more to have lunch with Warren Buffett or to be fired into space on a rocket with Jeff Bezos? I personally would pay a large fraction of my net worth not to be fired into space on a rocket with anyone; if I had to be fired into space I'd prefer to do it with Jeff Bezos (he's probably got people making sure it's safe?) but mostly I'd rather just pass. Whereas lunch with Warren Buffett would probably be fine, I don't know, it's not really my thing but I wouldn't mind it exactly. But the market has spoken; a terrestrial lunch with Buffett goes for around $4.6 million, while a space trip with Bezos is worth $28 million: A ticket to go into space next month with Jeff Bezos went for almost $30 million, including the commission, in a charity auction Saturday, said Blue Origin LLC, the space company founded by the billionaire. The winner of the live phone auction wasn't revealed Saturday—Blue Origin said it had to complete final paperwork—but is expected to be named in two weeks. The successful bidder will be among the passengers on the New Shepard vehicle's first crewed launch planned for July 20 and spend a few minutes in space with Mr. Bezos, his brother Mark Bezos and an unnamed fourth would-be astronaut. Bidding opened Saturday at $4.9 million and rose quickly to $10 million before four participants competed to ultimately raise the price to $28 million. A 6% buyers' commission is added to the winning bid, taking the final cost to $29.7 million. Blue Origin said 7,600 bidders from 159 countries registered for the event.
Okay. It would be funny if the winning bidder is going to spend the cramped 10-minute flight pitching Bezos on cryptocurrency, like the last Buffett winner did. Buffett can always get up from the lunch if it gets too intense; it's not like Bezos is going to eject into the upper atmosphere. Things happenLordstown Motors Sinks on CEO Exit, Inaccurate Statements. Hedge-Fund Manager Who 'Came Undone' Is Headed to Prison. Credit Suisse's 30-Year-Old Trading Prodigy Goes It Alone. The Hedge-Fund Manager Who Did Battle With Exxon—and Won. U.S. Father-Son Duo Charged With Helping Ghosn Flee Plead Guilty. Four at Toshiba Resign Over Campaign to Thwart Foreign Shareholders. Catching Rides on Meme-Mafia Trades May Boil Down to Models. CLOs draw in new support after showing resilience. Wannabe Bitcoin ETFs Are Mushrooming and Getting More Creative. Goldman Sachs ramps up cobalt trading. High-Speed Trader Virtu Fires Back at Critics Amid Meme-Stock Frenzy. Here Come the Teens: They Can't Vote, but They're Old Enough to Buy Stocks. Elon Musk Says He's Putting Last Remaining House on the Market. Handy chart. Lobster diver says he was swallowed by humpback whale near Cape Cod. Cape Cod lobsterman's whale of a tale sounds fishy, experts say. Congrats Wasabi! 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 realize that most traders, and increasingly most investment bankers, do not actually have offices, but the same basic principles apply everywhere. If you are a good trader you get room to spread out and like 12 monitors; if you are bad you end up on a camp stool near the bathroom trading from an iPad. | 
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