Levine on Wall Street: The Whining Herd
Where's all the Chinese aluminum?
Citic seems to have lost half of its alumina in Qingdao, and again I am struck by just how little of global finance is pure fraud. Like, you don't want to lend money to a company that you've never met in a foreign country, but you're willing to do so if you can take collateral, but "collateral" is just some words saying you have a claim to some metal in a warehouse that you've never visited. And that mostly works? And the world would be immeasurably poorer if it didn't, if the only way to get financing was for the bank to take physical delivery of stuff and lock it in a vault and hand you a check. The general move of finance toward abstraction is both economically vital and aesthetically pleasing. But it also means that sometimes you lose half your alumina.
What's up with Argentina?
The latest is that Argentina may re-route its debt to be Argentine law rather than New York law, freeing it (maybe!) to pay its exchange bondholders in Buenos Aires, without having to pay its holdout bondholders in New York. Joseph Cotterill worries for the people -- lawyers, intermediaries, and exchange bondholders -- who would need to cooperate to make that happen, and who are subject to the jurisdiction of a furious New York Court. No one wants to go to jail for an interest payment.
What's up with Valeant and Allergan?
Well, Valeant is planning to launch a public exchange offer to Allergan shareholders, which is mostly a cosmetic development; the shareholders can't accept the exchange offer until Allergan rescinds its poison pill, and that's not gonna happen unless the board agrees or is voted out at the special meeting Valeant is trying to call. So, just more paperwork, mostly. Speaking of paperwork, Bill Ackman messed up a presentation about Valeant's cash flow, which, I mean, it happens. And short seller John Hempton's series of posts finding problems with Valeant is up to Part VII and remains entertaining; Part VI is "a first question on corporate jets" so stay tuned for more jets questions.
SunTrust did some bad stuff.
SunTrust reached a $968 million settlement with the Justice Department and the Consumer Finance Protection Bureau and other agencies over the usual assortment of mortgage problems. The settlement has the usual assortment of problems of its own. On the one hand, it's a bit intellectually strange that the penalty for misrepresenting loan quality to investors is providing relief to homeowners; that should maybe go the other way? On the other hand, SunTrust did some pretty bad stuff to homeowners too, and the $40 million that it's paying to the 48,000 people it foreclosed on -- $833 each! -- seems a little light.
Watch out for your 401(k).
Here is a sad story about commission-driven brokers who persuade retirees to roll their conservative 401(k)s into creepy flavors of individual retirement accounts where the retirees lost lots of money. There is a very clear cautionary message, which is that "cold calls, Internet ads, storefront signs and cash incentives" are all terrible reasons to make any investment decision. Basically if anyone tells you to make an investment decision you probably shouldn't.
Here's some more information about who leaked the not-quite-true Phil Mickelson story.
He added that the alternative to using these sources is not to inform readers of important news. “That’s the nature of law-enforcement stories,” he said. “Is that good? No. But it’s a reality.”
So ... the source was in law enforcement? Trying to embarrass Mickelson because they didn't have enough evidence to charge him? And the possibility that a golfer might be involved in insider trading was important news?
Can we trust published results in finance?
No, because if they were right, someone would be secretly profiting from them, not publishing them in a journal. But here's a claim about t-ratios too.
Krugman reviews Geithner. If you're investing in an initial public offering, it's important to vet the secretary of the company's internal Communist Party Committee. B-school summer camp. Entrepreneur Barbie.
Is there anything sillier than Merrill Lynch brokers complaining about their business cards?
No, no there is not.
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Matthew S Levine at firstname.lastname@example.org
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