Levine on Wall Street: Early Earnings and Big Bond Funds
JPMorgan had earnings.
Net income was $5.6 billion, or $1.36 a share, versus $1.39 estimates. Legal costs were 26 cents a share, why not. The earnings were released several hours before they were supposed to, and then taken down, due to "operational error," and, you know, *sad trombone*:
JPMorgan did not immediately provide any information about how the report came out. Still, the leak on the web was an ungainly reminder of the bank’s own digital woes. Earlier this month, JPMorgan disclosed that a cyberattack in the summer had compromised the accounts of 76 million households and seven million small businesses.
Hahaha it's true, though I bet the people responsible for keeping out Russian hackers and the people responsible for "don't push the button on earnings until 7 a.m." are totally different people.
Some Jean Tirole explainers.
Tyler Cowen is of course the best thing to read, covering the breadth of Tirole's work and focusing on rigor and math rather than policy implications. Justin Wolfers has similar overall views. Here is Alex Tabarrok on Tirole and Benabou on "Extrinsic and Intrinsic Motivation," which is as neat a thing as you could hope to read about how regulation works, or doesn't; here is Tabarrok on two-sided markets, and Joshua Gans. Here is Noah Smith on corporations. Here are the official Nobel explainers, non-technical (don't miss the illustration!) and technical. Izzy Kaminska mentions the ice bucket challenge. A Voxplanation.
Pimco's size had some advantages.
One narrative of Bill Gross's departure from Pimco is that he was managing too much money to be nimble, and he's excited to re-focus on just buying bonds without worrying about moving the market with his size. But here is a very entertaining article about the flip side of that: Pimco's size let it drive tough bargains and get full allocations on any deals it wanted. "Pimco was probably the very first buyside player to be a bigger swinging" you know how that quote is gonna end up, and the "banks definitely resented the asymmetry." Presumably Bill Gross, who created and took advantage of that asymmetry and who is now running his much smaller and less powerful fund at Janus, will come in for some revenge from the banks he once bullied.
Bill Ackman, proud top-ticker.
There's a lot of interesting stuff in the story of Pershing Square's listing of its public vehicle, and the video interview too; don't miss Bill Ackman's description of the legal regimes requiring him to list in Amsterdam, or his comparison of Pershing to Berkshire Hathaway. And the bulk of the cash raised will be invested in one new campaign at a U.S. public company, so get excited. And there is this:
“The stock is down, which is good,” Ackman joked after ringing the opening bell. “If it went up we’d have sold it too low.” ... The shares couldn’t have been sold for less than $25 because the price is linked to the fund’s net asset value, Ackman said by telephone. As of Oct. 10 the fund’s NAV was $24.41 a share, Pershing Square Holdings said in a statement today.
Good point! Pershing Square owns some stuff -- some marked to market stuff -- and is essentially selling it to new shareholders. If it sells it below its value, then that hoses its existing investors, so that's no good. If it sells it above its value, then that hoses the new guys. And you always choose to hose the new guys.
Herbalife keeps improving.
My basic model of Herbalife is:
- Bill Ackman points out some horror that Herbalife does and says it's fatal,
- Herbalife denies that the horror exists,
- Herbalife fixes the horror, and
- life goes on for Herbalife.
So I don't really know which way that cuts? Like, on the one hand, Bill Ackman keeps scoring points, but on the other hand the points don't actually seem to support his thesis that Herbalife will go to zero. The latest fix is getting rid of the scammy third-party websites that lured some customers into Herbalife:
The Los Angeles company is banning independent websites run by US distributors and migrating their businesses to a corporate-controlled hub (goherbalife.com).
But what does Ben Bernanke's mortgage mean?
Amir Sufi takes a crack at it:
Modern banks are not savvy, information collecting business lenders. Instead, they take very leveraged bets on real estate. ... Meanwhile, the very thing that banks are meant to do well -- selecting businesses to lend to, so that they can grow, invest, hire employees and boost local economies -- has fallen by the wayside.
And it's easier to automate the real-estate betting with credit scoring models, which is why no one actually looked up and said "hey this is Ben Bernanke we can probably give him a mortgage." The old model of business lending with information gathering and monitoring tends to require looking at someone.
Fidelity has a new chief executive.
Abigail Johnson is already the president, the daughter of the outgoing CEO, and the granddaughter of the founder, so this is not precisely a surprise, but there you go. Elsewhere, "Fidelity will be unveiling its own robo-advisor" to help clients pick portfolios without dealing with humans, which I guess is what you do when you pass the reins to the younger generation.
How did you celebrate Columbus Day?
If the answer isn't "by reading this Harvard Business Review blog post over and over again," go rectify that. Here are some quotes:
- "Last spring I began offering a seminar for undergraduate business majors entitled 'Mutiny and Entrepreneurship.'"
- "Columbus worked amazingly long and uncommonly hard to develop competence as a leader of seafaring ventures."
- "As transformational as such leadership can be, it has limits. Columbus’s connection to the members of his enterprise was not always genuine."
- "... Lisbon, the Age of Discovery’s Silicon Valley ..."
- "He would always vehemently engage poor performance by members of his enterprise ..."
- "Such leadership deserves study and, to some degree, emulation."
Here is Cliff Asness being pugnacious at Paul Krugman, with movie references. Top Geeky Quant Blogs. "Far from 'spooking' real high-frequency traders," the recent indictment of Michael Coscia for spoofing "should actually be comforting to real HFT firms, whose strategies of entering and canceling large volumes of orders on both sides of the market were correctly distinguished by regulators from Coscia’s 'bush-league move.'" It's hard to be a billionaire, says well-known troll Paul Graham. Like every big bank, Morgan Stanley claims that it's not like the other big banks. A guy spent two weeks putting together an e-mail cc list of 200,000 co-workers and somehow isn't worried about losing his job. Crumbs is coming back for some reason. Which of the 12 types of millennial are you? Jia Tolentino on Nick Carter and Jordan Knight. You could rent a boat or whatever.
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Matthew S Levine at firstname.lastname@example.org
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