Levine on Wall Street: The Dream Team That Never Was

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Gross & Gundlach almost happened.

There's a lot of fun stuff in the story of how Bill Gross discussed joining forces with Jeff Gundlach to form "some kind of 'Dream Team' concept" managing bonds, starting with the fact that when Gross first called, Gundlach "told the receptionist to take a number and then call it to verify it was not some prankster." Does that happen? Do people go around pranking bond-fund managers pretending to be other bond-fund managers? I guess it's possible but it is a weird world of microcelebrity. Eventually Gross and Gundlach got together to sit in a loggia and talk about their careers, with Gross comparing himself to Kobe and Gundlach to LeBron, and obviously if the receptionist had said "hey Jeff I've got Kobe Bryant on the line" that would probably be a prank.

The meat of the conversation was that Gross wanted to run less money ("roughly $40 billion to $50 billion"), told Pimco's executive committee that, and they fired him instead. Which makes sense: If Gross was bad for morale and eye contact, you can only justify keeping him around to run a lot of money. But running a lot of money has its own problems. Gundlach: "It was clear that Bill had reconciled himself to the weaker performance being because of the fact that he was running too much money." Here is Felix Salmon arguing that macro forecasts aren't that important for bond fund managers: Gross could get the big rate calls right (or, as it happens, wrong) but still have trouble making money because his fund was too big to steer tactically.

Hewlett-Packard is breaking up.

There will be a HP for enterprise and another HP for PCs and printers, though there is like an ironclad rule of corporate branding that companies will never use the obvious funny name, so they won't be called "Hewlett" and "Packard," just like the publisher is not Random Penguin House. Elsewhere, Yahoo is getting right back on the silly-venture-capitalism horse, and S&P 500 Companies Spend Almost All Profits on Buybacks. These are times that call for a good Nature-of-the-Firm-style theory of when investing decisions should be made by corporate managers and when they should be made by hedge-fund and mutual-fund managers. If you think that capital should mostly be allocated by people whose job is capital allocation, not by people whose job is making products, then I guess you'd want more breakups and buybacks and fewer punts by Yahoo on unprofitable startups. But I'm not completely convinced that you should think that.

Convertible bonds are great.

I'm mostly telling you this because I used to sell them and so naturally think that everyone should issue convertible bonds all the time for all of their financing needs. But I don't quite understand this:

The upswing in the $224 billion U.S. convertible market -- the market value, according to a Barclays PLC index -- is the latest result of investors’ hunt for higher returns at a time of near-zero short-term interest rates.

But ... convertibles have lower yields than regular bonds; that is their whole point. I might go with something more like: Interest rates have to go up eventually, and when they do it will be because the economy is in better shape, and that will be bad for regular bonds, but convertibles will be fine because the equity component will get more valuable in a better economy. That would be my story. Also: Convertibles are basically stock options, and a stock option's value is based on volatility, and volatility has been world-historically low this year but has to eventually go up, so you're getting some cheap options.

There's a new electronic bond trading platform.

This one is called Neptune and sure why not:

The network won’t be for executing trades, the people said. Rather, it will link up banks and investors in the market -- and potentially some of the existing trading platforms they use -- just as a mall would bring together several shops under one roof, said Stephane Malrait, global head of fixed-income e-commerce at Société Générale.

It's hard to imagine that in, like, ten years, bonds will still be traded the way stocks were fifty years ago. There's one of these platforms announced every week or two, and really one or more of them has to catch on eventually. I wouldn't put a lot of money on any one of them individually, but I guess let a thousand bond trading platforms bloom.

Bitcoin went down.

One efficient-markets cliché is making fun of the people who hop around trying to explain and anthropomorphize whenever the stock market goes up or down, you know, Stocks Mixed On Strong But Conflicting Emotions or whatever. Another cliché is that bitcoin is reinventing modern finance as we watch. So bitcoin prices dropped below $300 yesterday and look at this:

Analysts are citing a number of factors for the decline: bearish chart signals; ongoing regulatory concerns; large sell orders by some early adopters; and a shift in the supply/demand balance.

There's a sense in which you always want to be the analyst who cites "a shift in the supply/demand balance," though in a larger sense you never do. (Also never be the "bearish chart signals" guy, come on.) "Some contend that Bitcoin’s price is irrelevant and that it does not reflect the virtual currency’s true value," of course, and while the second half of that sentence is true in any financial market the first half is weird. But not a surprise, right? Obviously bitcoin didn't go down yesterday priced in bitcoin.

Things happen.

RadioShack found some financing. The Goldman Sachs/Libyan Investment Authority lawsuit remains embarrassing. Should algorithmic wholesalers have their algorithms regulated like exchanges will? Here is a paper arguing that the leverage ratio will create better monitoring incentives for big banks than risk-based capital does. Uptown House is like Soho House, but uptown. In Seinfeld Nation, Millennials Delay Marriage for Selfie. MOOCs for marmosets.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net