Levine on Wall Street: Data Leaks and Hedge Fund Celebrities

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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Morgan Stanley lost some data.

Remember the JPMorgan hack, where the most sophisticated cyber-criminals in the universe were able to look at some account information for millions of people? The story here is that a fairly junior financial adviser at Morgan Stanley -- promoted from sales assistant last year -- somehow ended up in possession of account information for 350,000 wealth-management clients. And then ... I mean, his lawyer says he "acknowledged that he should not have obtained the account information" but "did not sell nor ever intend to sell any account information whatsoever," but what was he doing with it? Anyway someone posted sample data on Pastebin, offering to sell the rest for "Speedcoins, a virtual currency," because, of course, Speedcoins. As with JPMorgan, no money was taken, and it's hard to tell exactly how scary it all is. Is is worse than the JPMorgan thing? I mean, a lot more data was involved at JPMorgan, and eeeeevil sophisticated state-backed hackers and so forth. On the other hand, if someone's going to steal and sell all your client data, don't you want it to be sophisticated hackers? It's not great if some schlub can just waltz out of the office with everyone's account information and sell it on the Internet for imaginary money.

Bill Ackman had a good year.

Here's a profile of Bill Ackman, who runs Pershing Square, the best-performing large hedge fund in Bloomberg Markets' 2014 ranking, and who, I mean, look, you know the Bill Ackman story by now. He's sort of a polarizing figure. Here's how polarizing. On the one hand, you have Marty Lipton, my former boss. Ackman offered to debate him ("Anywhere. For any length of time. Activism: It’s good for America; it’s great for the economy. We should put it on Bloomberg TV. I tell you, people would show up for this."), and Lipton replied: "There is no way on earth I would debate Mr. Ackman. You know how I feel about him. It would be beneath me." Ouch! On the other hand, there is this kid:

“Excuse me, Mr. Ackman? Can I have your autograph?” It’s a rainy afternoon in early December, just outside Pershing Square’s offices. William Holmes, a recent college graduate with a degree in economics, is shivering in the cold, holding a notebook. “I’ve studied everything you’ve done,” the young man gushes. “You are like the Socrates of our time.” Ackman writes the kid a note. “I’m telling you, I have a huge fan base,” he says as the beaming young man walks off.

Elsewhere in hedge fund news, Paul Tudor Jones is shutting down his oldest hedge fund to focus on his biggest hedge fund, which seems reasonable enough. And I missed it yesterday, but here's a pretty nutty story about Blackfield Capital, the Moscow hedge fund that once "hosted a gala with an 'Alice in Wonderland' theme that included a trapeze artist hanging from a chandelier and filling up flutes of champagne," but whose 29-year-old founder is now mysteriously missing. 

Point72 is doing great, thanks for asking.

Meanwhile, Steve Cohen's former hedge fund and current not-hedge-fund "generated a gross profit of $2.5 billion to $3 billion" in its first nine months on initial capital of around $10 billion, making it a pretty good hedge fund considering that it's not legally allowed to be a hedge fund. This is notable not just because, you know, rich guy is good at investing, but also because it refutes a popular hypothesis about SAC Capital, which is that its years of market-beating returns were due mainly to insider trading. Steve Cohen now can't go to the bathroom without being escorted by like eight former prosecutors and FBI agents, so it seems unlikely that there's much insider trading at Point72. Which kind of validates the old business model too; the reasonable conclusion is that SAC Capital had, sure, quite a bit of insider trading, but not an overwhelming amount of insider trading.

Checking in with Argentina.

The "rights upon future offers" clause in Argentina's exchange bonds expired with 2014, freeing up Argentina's government to make a new offer to its holdout bondholders, who've been fighting and winning in court for a decade to get a better deal than Argentina's 2005 debt exchange. So it did. Can you guess what the new offer was? Yes you can!

Argentina is still asking the holdouts to accept a haircut of 65 percent on the bond principal, Mr. Kicillof told a local news website over the weekend. He said it would be “as if the exchange were taking place in 2005.”

Hahahaha yeah that's pretty much Axel Kicillof's schtick. Stay tuned for 2016, when Argentina again offers the holdout bondholders the same deal it offered in 2005. (To be fair, the new deal includes accrued interest, which is nice, though not really that nice.) Elsewhere in Latin American bond news, Aurelius is trying to round up bondholders to declare a default on Petrobras's bonds. The default is pretty technical -- a breach of reporting requirements -- but I guess it's never too early to start litigating.

Government lending and borrowing.

Here's Michael Grunwald in Politico Magazine on U.S. government loan programs, which "are now the fastest-growing chunk of the United States government, ballooning over the past decade from about $1.3 trillion in outstanding loans to nearly $3.2 trillion today." Some of these loans do not perform so well -- the Maritime Administration props up shipbuilding at the cost of a lot of defaulted loans, and "the Department of Agriculture’s loan programs promoting biofuel refineries, rural broadband and renovations of rural apartment buildings have all performed even worse than MarAd’s, recovering less than 40 cents per dollar, the kind of return you might expect lending to your brother-in-law" -- but the point is not so much to make a good return as it is to subsidize various favored industries in a not-quite-handing-them-free-money sort of way. 

And here is Kristi Culpepper on infrastructure investment -- part 1, part 2, part 3 -- arguing, among other things, that "the largest expense associated with infrastructure is operations and maintenance, not new construction," but that federal money tends to be focused on construction, creating a mismatch.

Some personnel news.

Here's a weird story: Joseph Stiglitz "has been blocked from a government panel that will advise regulators on issues facing U.S. equity markets," apparently by Republican Securities and Exchange Commissioner Daniel Gallagher. The panel will apparently include "representatives of Wall Street brokerage firms and academic researchers," including Brad Katsuyama of IEX, as well as former Senator Ted Kaufman for some reason. Also a bunch of academics, but not Stiglitz, who knows a thing or two about financial markets, and even got a Nobel Prize for it. Why not have him?  The going explanation seems to be that he's a high-frequency trading skeptic; he says,"I think they may not have felt comfortable with somebody who was not in one way or another owned by the industry," which seems a bit cynical, though I suppose it's a fair description of how a lot of regulatory panels operate. Elsewhere, "President Barack Obama is expected to nominate a community banker to the Federal Reserve’s Board of Governors as soon as this week," though no one knows who, just a community banker, they're all interchangeable, politics is dumb. And here is the New York Fed on the revolving door, discussing a paper we previously discussed here.

Things happen. 

Janus’ Gross Sees No Rate Increase Until Late 2015 'If at All.' 2015 will be a make-or-break year for Bitcoin. CEO Who Said He’d Probably Have To Fire Employees If Obama Won Is Now Giving Them Raises. Andrew Ross Sorkin on the Grundfest v. Harvard board declassification spat, and Joseph Grundfest's latest salvo. Trading on Sunspots. Emu recorded running through traffic in Israel. Mac Sabbath. A song about bonds.

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:
Matt Levine at mlevine51@bloomberg.net

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