Levine on Wall Street: PowerPoint and Potashfinger
Credit Suisse made money.
The way we Swiss bank now: "In keeping with past quarters, money pulled out by clients in Western Europe who are declaring funds previously hidden in Switzerland to local tax authorities was offset by new business with clients in Asia." Profit was up, beating expectations, though the beat came from the investment bank, with private banking and wealth management down a bit.
What are hedge funds good at?
Here's a delightful paper titled "Information in Financial Markets: Who Gets It First?," by Nathan Swem:
This paper examines the timing of information acquisition of hedge funds, mutual funds, and broker/dealer analysts. I find hedge fund trading anticipates analyst information, while mutual fund trading does not. Specifically, hedge fund net buying predicts more analyst upgrade reports in the next quarter, and predicts fewer downgrade reports. Secondly, I find hedge funds and mutual funds respond differently to analyst information: in the quarter following analyst reports hedge funds “defy” analyst recommendations, while mutual follow the analysts. Finally, I find hedge funds perform best among stocks with highest research coverage and institutional ownership.
I think you could have about three theories for this. One is: Analysts leak their recommendation changes to hedge funds. Probably a little, but Swem doesn't think this explains much of it ("either the 'tipping' effect has a very long (several week or more) effect, or that 'tipping' alone does not explain all of the hedge fund prediction effect that I find"). A second is: Hedge funds take positions, and then call up analysts to try to get them to change their recommendations. This has an intuitive appeal, and is a popular explanation in my Twitter feed. (This need not be nefarious: If your smart clients call you and talk up stock X, why wouldn't you start thinking nice thoughts about stock X?) A third, of course, is: Hedge funds are smart, and figure things out before analysts, who in turn figure them out before mutual funds. This is a little weird generally, and founders on the hedge fund industry's recent unimpressive performance, but at least in large heavily-covered equities it might be true.
If you told me that former National Security Agency Director Keith Alexander used his position at the top of a global electronic espionage organization to corner the market in potash and make fabulous profits in that shadowy market, I'd be like: That's some cool spy stuff, I'll allow it. And that's what I initially thought this article was about. But it's not, he just bought stocks in potash companies (and aluminum companies for that matter), more or less at random and without making much money. Which is disappointing. If we're going to have an all-seeing spy agency whose agents trade in stocks linked to geopolitically important commodity markets, it'd be nice if they were good at it.
Lawyers gonna lawyer.
I am not particularly troubled by the fact that former regulators who now represent banks say that their clients should not have to pay billions of dollars in penalties for assorted nefariousness, but Jesse Eisinger is. Elsewhere, the head of a European banking trade group thinks that there should be fewer banking rules.
Can there be runs on bonds?
I find the bond-market-liquidity debate truly puzzling, and now the International Monetary Fund is weighing in with a suggestion that bond mutual funds and exchange-traded funds should charge exit fees:
“This mismatch between the liquidity promised to fund owners in good times and the cost of illiquidity when meeting redemptions in periods of stress is a concern and call for action by regulators,” Fabio Cortes, an economist in the IMF’s monetary and capital markets department, wrote in an e-mail this week.
Is that true? It is a popular belief, and not only among regulators; there is a lot of support for the story that bond liquidity is not what it used to be, and that building liquid products like ETFs on that illiquid foundation can lead to trouble. But there are also skeptics; here's a pretty compelling round-up of the skeptics from earlier this week. Whatever you think about the risks of bond market illiquidity -- which, if they exist, were probably mostly caused by regulators? -- you could be skeptical of Cortes's view that they "call for action by regulators."
Yahoo is great.
"Yahoo Delivers Message to Activist Starboard: Back Off" is the headline here, with Marissa Mayer giving her disgruntled shareholders a stern talking-to on this week's earnings call. The transcript is pretty enjoyable; people are so suspicious of Yahoo's random-seeming acquisitions that Mayer had to say this:
These are acquisition that we consider carefully with management and our Board. In terms of process we have sophisticated business models, detailed integration plans and work extensively with the other company in preparation for the merger.
I feel like it's usually not necessary to say "we give it some thought before we buy a company" but there it is. Mayer also has apparently been getting a lot of calls from people with clever ideas about how Yahoo should maybe try not to pay taxes on its remaining Alibaba shares. Mayer: "We are acutely aware of this," although to be fair it's paid a lot of taxes on the shares it's sold so far.
How not to use PowerPoint.
Here's a story about how football players at the University of North Carolina took fake classes to keep their grades up, which contains this bizarre and instructive passage:
The counselors convened a meeting of the university’s football coaches, using a PowerPoint presentation to drive home the notion that the classes “had played a large role in keeping underprepared and/or unmotivated players eligible to play,” according to a report released by the university on Wednesday.
“We put them in classes that met degree requirements in which ... they didn’t go to class ... they didn’t have to take notes, have to stay awake ... they didn’t have to meet with professors ... they didn’t have to pay attention or necessarily engage with the material,” a slide in the presentation said. “THESE NO LONGER EXIST!”
OK. First of all: This is bad PowerPoint. Too much text. You don't want your audience reading your slides; the slides should be visual aids with at most a few bullet points. The focus should be on you, not what's on screen. Second, though: Don't put dumb stuff like this in writing! Come on. You have a casual chat about this, it doesn't end up in the New York Times. You write it in a PowerPoint, and not only have you bored your audience, but it lasts forever.
Bank Asya vs. the Turkish government. More JPMorgan China-hiring awkwardness. Lloyds is cutting 9,000 jobs. Jessica Pressler talks about her work and about Lloyd Blankfein's "daddy issues." The State Does Not Enforce Most Agreements. How Wall Street ruined sabermetrics. Taylor Swift hits No. 1 on the Canadian iTunes charts with eight seconds of static. "Smart people listen to Radiohead and dumb people listen to Beyoncé, according to new study." Generation X just wants a beer and to be left alone.
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Matt Levine at firstname.lastname@example.org
To contact the editor on this story:
Zara Kessler at email@example.com