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JPMorgan made money that it did not, you would have to say, "deserve" to make
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if you are a 25-year-old entrepreneur and you borrow $2 billion to buy stock and the stock ends up being worth less than $2 billion, that loan is non-recourse, no matter what it *says*
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If a company sells exploding toys, and gets sued for billions of dollars of damages when the toys explode, and files for bankruptcy, then the best result is probably for it to go out of business and never sell the toys again. But if a company sells electricity in California, and causes a bunch of fires, and gets sued for billions of dollars of damages and files for bankruptcy, the likely outcome is probably not going to be that there will be no more electricity in California.
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This is a family newsletter and I have altered some of the swears into asterisks.
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sitting around the hearth with your wife and kids ready to read the latest writeup of JPMorgan's financial transgressions
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traditionally “improving the efficiency of financial markets” is just a euphemism for “making a lot of money trading derivatives.” What if you took it seriously? Like, imagine, there you are, a college senior, going from your Teach for America interview to your interview with Chris Purves of UBS Group AG’s Strategic Development Lab. At TFA they’re like “we can’t pay you a lot, but we’re looking for people who want to make a difference in the lives of underprivileged children and improve educational outcomes in America.” And then you go to UBS and they’re like “we can’t pay you a lot, but we’re looking for people who want to make a difference in what the market will look like in 10 years.” And you are like “well improving education is great but the really important work is in improving bond market liquidity, sign me up”? Really?
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The real power move would be improving bond liquidity through increasing demand among underprivileged children. Go on, Timmy, buy a bond!
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Uh, I mean, yes, if he is tried and acquitted before a fair court, that will help restore his reputation. On the other hand, one, he doesn’t actually get to pick a court to try him, that’s just his peevish fantasy, and, two, if he is tried and convicted before a fair court, that will be bad both for his reputation and for going to prison.
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There are no rapacious hedge funds or amoral index funds in sight, or there weren’t anyway until the charity got frustrated and brought in some hedge funds to help it out.
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i should run for office on a War-on-Super-Bowl platform, like, "the good people of America are tired of saying 'Big Game party,' and when I'm president we'll say 'Super Bowl party' again like God intended."
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I am forced to conclude that my readers are about an order of magnitude more likely to be interested in urine vests than in collateralized loan obligation documentation. It’s like I don’t know you people at all.
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Like 50,000 of you emailed to say “maybe we didn’t click because we love CLOs had already read that CLO article, did you ever think of that?” Fine, fair, I take it all back, you are all way ahead of me, on CLOs.
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But the CDS writers have been trying to block that -- by, basically, bidding up the price of the new ridiculous bonds -- and so Hovnanian is trying to outflank them by issuing a newer and even more ridiculous bond.
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Because, yes, now, canonically, being cruel to orcas is securities fraud.
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Shareholders are asked vote on approving executive compensation, for instance, in what is called a “say on pay” vote; if they vote no, the executives still get the money, but it is generally considered embarrassing and bad for the executives.
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Like, you read “Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen” and you think “oh and that's the tea he must have objectively evaluated all possible securities investments and decided that this is the most profitable one, and given his vast experience in direct-to-video action movies I might as well put my trust in him”? Come on. Surely everyone knows that “Brand Ambassador” means “I have been paid to promote this thing.” As a matter of securities law sure I suppose you might want people to disclose “the nature, scope, and amount” of compensation, but as a matter of consumer protection absolutely everything any reasonable investor would need to know about Bitcoiin2Gen is contained in the sentence “Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoiin2Gen.” That is a model of securities disclosure; it is brief, readable, clear, and tells you—as no 10-K does—exactly how much the security is worth.
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It is well known that one of the best services a retail broker can provide is not answering the phones during a crash. The market is down, the customers panic, their timing is terrible, they want to sell at the bottom, they call you up to say “sell everything,” you say “we’re sorry all our representatives are assisting other customers, your call is important to us,” they hang up and get distracted, the market rallies, they forget about selling, you have saved them a fortune, good work.
wow, [you]. that all sounds terrible. i hope it gets better for you
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Skeletor wrote: ↑Mon Mar 09, 2020 2:44 pm It is well known that one of the best services a retail broker can provide is not answering the phones during a crash. The market is down, the customers panic, their timing is terrible, they want to sell at the bottom, they call you up to say “sell everything,” you say “we’re sorry all our representatives are assisting other customers, your call is important to us,” they hang up and get distracted, the market rallies, they forget about selling, you have saved them a fortune, good work.
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Naturally, Senator Elizabeth Warren referred the matter to the Securities and Exchange Commission because, you see, killing an Iranian general is securities fraud. I know that sounds weird but it is the society we have chosen, one in which (1) there are virtually no checks on a president’s authority to wage war but (2) everything is securities fraud.
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We have talked a bit recently about those circuit breakers, because they have been triggered a lot. Today was the third time in about a week, and each time they’ve been triggered shortly after the open: Investors digested news overnight, decided the news was real real bad, sold a lot of stocks, and were then forced to take a 15-minute timeout to see if they were sure. They were sure!
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I might say “in this time of crisis, everyone understands that credit quality across the board has gotten worse, and we don’t think it would be particularly informative or helpful to investors or issuers to do mass downgrades.” Or I might dance around the issue by saying “our ratings standards remain unchanged but the operational difficulties caused by working from home will delay any new ratings actions by months, sorry, check back with us in the fall.”
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He should say "tripped"Rylinks wrote: ↑Mon Mar 16, 2020 4:45 pm We have talked a bit recently about those circuit breakers, because they have been triggered a lot. Today was the third time in about a week, and each time they’ve been triggered shortly after the open: Investors digested news overnight, decided the news was real real bad, sold a lot of stocks, and were then forced to take a 15-minute timeout to see if they were sure. They were sure!
Circuit breakers are tripped
Crunchums will appreciate this post
It's your turn in Cthulhu Wars
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
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i also appreciate it
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Circuit breakers are tripped when the stock market is triggered
wow, [you]. that all sounds terrible. i hope it gets better for you
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fire matt levine, let's get crunchums in there
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If oil prices are in contango—if the price of June oil is above the price of May oil—then by rolling the futures (selling the cheap May one and buying the more expensive June one) you are effectively paying someone else to store the oil for a month. Someone else can buy the cheap May contract, sell the expensive June one, take delivery of the oil in May, keep it in their garage for a month and deliver it in June. (If oil prices are in backwardation then someone is paying you to take the oil out of storage because they really need it now.)
Occasionally you will have the odd situation in which (1) people think that oil is valuable and want to bet, abstractly, on its future prices but (2) no one wants any actual oil right now because no one is using it and they have nowhere to put it:
Occasionally you will have the odd situation in which (1) people think that oil is valuable and want to bet, abstractly, on its future prices but (2) no one wants any actual oil right now because no one is using it and they have nowhere to put it:
This situation—in which the price of the June contract is far above that of the May one—apparently delights in the name “super contango.” People put a price on oil—they think it has value and want to own it at that value—but they also put a price on not having it now, and the latter price is quite high relative to the former. Conceivably, in theory, the latter price (what you’d pay to not have oil now) could exceed the former (what you’d pay to have oil eventually), leading to negative spot prices. We’re getting there:Oil plunged the most on record to below $12 a barrel in New York as a historic demand slump fills inventories to the brim.
Futures fell as much as 40%. While the collapse reflects the most immediate May contract expiring on Tuesday, it nonetheless highlights a fast-growing glut of oil, and rapidly expanding stockpiles at the American hub at Cushing, Oklahoma. OPEC+’s record production cuts from next month are paling in the face of this evaporating demand.
The upcoming May contract’s expiry means traders are shifting their positions to June as they try to avoid taking deliveries of cargoes because of the lack of space to store them. That has opened up an unprecedented discount of more than $10 between the two nearest contracts.
In ordinary economics, things do not have negative prices: If nobody wants a thing, if you’d have to pay them to take the thing, you just don’t make it. Oil is a little weird—it is hard to shut in and then restart an oil well, and there are all sorts of weird cartels and game theory involved in oil pricing and production—but the other thing going on here is that a global pandemic is pretty weird for commodity prices. The price of oil is not approaching zero because nobody needs oil; you can look into the future—or at futures prices—and see that, in fact, there is demand for oil. But right now, with the world economy closed, people need much less oil than they’ve got. If you have a thing that lots of people want, but that no one wants right now, it is hard to put a normal price on it.There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands.
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tl;dr oil is negative because we ran out of places to store the oil and not because traders think no one will want any oil any more forever
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finally i understand something about all this
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Though there is McDougall's claim that no one understood that, if the stocks went down, "they could lose all their money." But that's a weird thing not to understand. It is true of any stock! If you buy a stock, and the stock goes to zero, you will lose all your money. I mean, if you just bought plain old Citigroup stock in January 2008, you'd have lost 96 percent of your money within 14 months. 9 It may be the case that no one at LIA understood that, if they invested in the shares of big international banks, they could lose all their money -- but that was a widely shared delusion, even in early 2008.
Instead, the main complaint seems to be that the LIA didn't understand the details of the derivative structure: They didn't understand the fine points of the documentation, and they didn't understand one big point, which is that "they hadn't purchased actual shares." The LIA's Citi trade was "a cash-settled forward purchase agreement for Citigroup shares with downside protection in the form of a put option at the same price as the forward," which I guess sounds a little complicated. (Let's give it an acronym for convenience, say CSFPAFCSWDPITFOAPOATSPATF.) You can also say it was "a cash-settled call option," which is equivalent, and somewhat less of a mouthful. Or you can say it was "a bet that Citi's stock would go up." That is more intuitive, but it is not equivalent. It is information-destroying: A cash-settled call option is precisely the same thing as a CSFPAFCSWDPITFOAPOATSPATF, but there are lots of ways to bet that the stock will go up, only some of which are identical to the CSFPAFCSWDPITFOAPOATSPATF.
There are times where the specifics matter. If a salesman says "hey you should do a hedge that will compensate you if interest rates go down," and you agree, and then interest rates go down, but the hedge doesn't actually pay out because of some weird structural feature that the salesman forgot to explain to you, then you have every right to feel aggrieved. If a salesman offers you a bet that Citi shares will go up, and you take the bet, and Citi shares go up, and you don't get any money, and you ask him what happened, and he shrugs and says "derivatives are complicated, man" -- you should probably sue him. But if a salesman offers you a bet that Citi shares will go up, and you take the bet, and Citi shares lose 96 percent of their value, it looks a little funny to go to court and say "well we didn't understand the structural nuances of the bet." The nuances are not your problem.
Instead, the main complaint seems to be that the LIA didn't understand the details of the derivative structure: They didn't understand the fine points of the documentation, and they didn't understand one big point, which is that "they hadn't purchased actual shares." The LIA's Citi trade was "a cash-settled forward purchase agreement for Citigroup shares with downside protection in the form of a put option at the same price as the forward," which I guess sounds a little complicated. (Let's give it an acronym for convenience, say CSFPAFCSWDPITFOAPOATSPATF.) You can also say it was "a cash-settled call option," which is equivalent, and somewhat less of a mouthful. Or you can say it was "a bet that Citi's stock would go up." That is more intuitive, but it is not equivalent. It is information-destroying: A cash-settled call option is precisely the same thing as a CSFPAFCSWDPITFOAPOATSPATF, but there are lots of ways to bet that the stock will go up, only some of which are identical to the CSFPAFCSWDPITFOAPOATSPATF.
There are times where the specifics matter. If a salesman says "hey you should do a hedge that will compensate you if interest rates go down," and you agree, and then interest rates go down, but the hedge doesn't actually pay out because of some weird structural feature that the salesman forgot to explain to you, then you have every right to feel aggrieved. If a salesman offers you a bet that Citi shares will go up, and you take the bet, and Citi shares go up, and you don't get any money, and you ask him what happened, and he shrugs and says "derivatives are complicated, man" -- you should probably sue him. But if a salesman offers you a bet that Citi shares will go up, and you take the bet, and Citi shares lose 96 percent of their value, it looks a little funny to go to court and say "well we didn't understand the structural nuances of the bet." The nuances are not your problem.