Levine on Wall Street: Atomic Nonsense
Stocks were down.
I'm not really into telling you what that means but I guess it's worth memorializing here. The S&P 500 was down 2 percent yesterday and has that ever even happened before? If you'd like your drop cheerfully anthropomorphized, DealBook has you covered ("“I think it’s healthy and normal at this stage of the monetary cycle"). If you'd prefer to read about bears being bearish, the Wall Street Journal has rounded them up ("There's one thing for sure: History repeats itself, and this is starting to feel like a bubble"). The Journal also covers the boredom angle ("Investors have gotten used to a very low volatility, pretty boring market, grinding higher on low volumes"), though Bloomberg News has a guy saying "These are interesting times for markets."
So ... Argentina?
One possibility that I did not give much attention to yesterday is that Argentina is not in default and we've all been imagining the whole thing. I'll let Argentina's economy minister, Axel Kicillof, explain that one:
“There is no default. There are collection problems due to a judiciary sentence. The money held by judge Griesa is not ours, it belongs to bondholders,” argued Kicillof, adding the New York judge’s way of handling negotiations are “Guinness record material” thanks to his “incongruence.” ...
“Argentina paid. The payment is done. Argentina deposited the money,” Kicillof said, denying the default.
He also called talk of default "atomic nonsense," and the "cabinet chief, Jorge Capitanich, said that the decision by the ratings agency Standard & Poor’s to put Argentina in a so-called selective default was 'an absurd lie.'" So there's that. As to the rumors that banks will buy the holdout bonds in order to facilitate a settlement, Kicillof said, "If banks want to pay with their own money, the government won't resist it." So if you just want to send a check to Elliott Management to help Argentina out, the coast is clear, go right ahead.
Elsewhere! Elliott Management has denied having any credit default swaps on Argentina, but that hasn't stopped the conspiracy theories. Anna Gelpern makes an intriguing point about the injunction math: The more exchange bonds are accelerated, the less Argentina has to pay Elliott and the other holdouts. And Felix Salmon is quite cheery about the prospects of Argentina muddling along in a world "where default becomes a newly permanent condition."
The SEC is not happy about leaks.
Someone at the Securities and Exchange Commission leaked information about the London Whale settlement to Reuters, and Reuters wrote about it, and for some reason this angered the SEC. So the SEC's inspector general did a big and somewhat comically labor-intensive investigation into who leaked ("they searched the emails and BlackBerry records of 39 SEC employees and conducted interviews with 53 SEC employees in total" and "sought to interview the reporters involved in the two stories, but they declined its request"). Then the inspector general's office wrote up a big report about all the work they did. Two key takeaways:
So good job everyone.
Bill Gross is no longer the star at Pimco.
All of Pimco's top-performing funds are not run by Bill Gross, and three of its four below-average funds are. Gross, however, remains unparalleled at producing bons mots on television, like "We’re sticking to our guns, our new guns in terms of the new neutral." It seems implausible to me that making macroeconomic calls with hundreds of billions of dollars would ever be more than a series of slightly biased coin flips, but of course there's a reason I don't have a long track record of successfully managing hundreds of billions of dollars.
Bill Ackman is not happy about his death-blow presentation.
"I think we raised expectations," says Ackman about a presentation about which he previously said "I’m raising expectations, but we won’t disappoint." During his three-hour Herbalife death march last month, Ackman criticized the media for focusing more on the Herbalife hedge fund circus than on the substantive question of whether it is an illegal pyramid scheme. But there's plenty of blame to go around on that front. Ackman gives good circus. Meanwhile Des Walsh can't help himself:
Club 100 was created by a distributor in Mexico and adopted by others to train people who want to open clubs of their own, Herbalife President Des Walsh said in an interview last week after Ackman’s presentation. Herbalife has since adopted some of the practices of Club 100 into its own training programs, Walsh said.
“The intent is that it’s all about developing distributors before they begin to open up their club,” Walsh said. “That’s the point Ackman missed. This is actually a wonderful thing.”
Banks are not that customer friendly.
The Consumer Financial Protection Bureau is not happy about overdraft fees, and I don't know why it would be. One model you could have of banking is that it is a mechanism for transferring money from poorer people to richer people. I hope that this model is not true! Or mostly not true. But tricksy overdraft fees, which basically subsidize free checking for people who don't overdraw their accounts, have never been a great look. Elsewhere the Special Inspector General for the Troubled Asset Relief Program has nothing nice to say about mortgage servicers' performance under the Home Affordable Modification Program, in which the servicers are paid incentives to modify mortgages. SIGTARP thinks that the servicers have redefault rates on modified loans that are too high, and take too long to review applications. Ocwen gets singled out for having the most applications without a decision, though nothing beats SunTrust, which paid $320 million last month to settle HAMP problems like these:
SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations and regarding how long SunTrust would take to make a decision on whether borrowers qualified for HAMP. SunTrust also failed to process HAMP applications in a timely manner. So significant was SunTrust’s failure in this regard, that the floor of the room in which the bank dumped the voluminous unopened HAMP applications actually buckled under the packages’ sheer weight.
Watch out for cocos.
European banking regulators want banks to be careful about selling contingent convertible debt -- the stuff that gets hosed if bank capital drops -- to retail investors:
While they can play an important role in inhibiting risk transfer from debt holders to taxpayers, it is unclear as to whether consumers fully understand the potential risks and are capable of correctly factoring these into their decisions.
(Via.) This is a little ominous. The point of the coco is not just contractual but sociological: Cocos can be written down because they are presumptively held by people who understand the risk and can bear the loss. If that's not true, and governments feel compelled to bail out coco holders, then that's not going to look good for anyone.
Obviously Goldman Sachs has the most attractive bankers. Valeant's bid for Allergan is only as good as its stock price. Neel Kashkari was fake homeless for a while. Watch out for variable annuity scams. Millennials don't like golf. Yolo.
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Matthew S Levine at firstname.lastname@example.org
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