Levine on Wall Street: Dollar Stores and Bitcoin Exchanges

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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Draghi reactions.

Here's the deal

The ECB president shrugged off determined opposition led by German officials with a pledge to buy 60 billion euros every month through September next year in a once-and-for-all push to put more cash into circulation and revive inflation. To assuage critics, the region’s 19 national central banks will make 80 percent of the purchases and take on any risk they carry.

Paul Krugman calculates that this added 0.2 percentage points to market expectations of near-term euro-zone (err, well, German) inflation, though consider the 5y5y5y5y5y. Steve Schwarzman, Scott Sumner and others think that this all should have been done much earlier, but here Dan Davies talks timing, and institutions:

I spent most of 2014 telling people that there was no chance of ECB QE until early in 2015. My reasoning was that a big intervention program could only have any chance of working if the banking system was able to support it by expanding credit, and that Mario Draghi knew that there was no point in pouring central bank funds into the leaky bucket of the Euroland banking system until the Asset Quality Review was finished. That happened late in October, and nothing happens in November or December, so January was the first possible month. 

Quantitative easing works, roughly, by giving banks money and hoping that they lend it out; if you know they won't lend, there's not much point in doing QE until you fix that first. Elsewhere, here is the Wall Street Journal on what this means for gold and oil, and for other central banks. Denmark's central bank says "We have plenty of kroner," which you'd hope. And Tyler Cowen points out that other central banks have even tougher jobs.

At last, a Dollar merger.

I mean, it hasn't closed yet, but "Shareholders in Family Dollar voted on Thursday to approve the retailer’s $8.5 billion merger with Dollar Tree, leaving the company’s unwanted suitor, Dollar General, on the losing side." The General was sunk by an antitrust approval process that was not going well -- "earlier this month Dollar General conceded that its only path to success would be to sue the Federal Trade Commission" -- and Family Dollar's shareholders decided to go with the dollar in the hand instead of the $1.07 in the FTC. Here's the General:

“Today’s vote is a loss not only for Family Dollar shareholders, but also for consumers across the country who will not have the opportunity to benefit from the cost savings and efficiencies that we believe would have been created by a merger between Dollar General and Family Dollar,” said Richard Dreiling, Dollar General’s chairman and chief executive.

I don't know about the consumers -- the antitrust worry is that a combined Family Dollar General would raise prices, not lower them, and honestly how much room do you have to lower prices at a dollar store? -- but the shareholder thing is reasonable. It's convenient for the FTC, though, that if it didn't like a Family Dollar General deal it could block it without a formal ruling or litigation: It just delayed the General bid long enough, and Family's shareholders did its work for it. Elsewhere, here is a story about the proposed Comcast/Time Warner Cable deal, possible FTC opposition, and Comcast's lobbying prowess. As a general rule I'd bet that lobbying prowess has a pretty strong inverse correlation with customer satisfaction.

Virtual currencies.

I kind of don't understand why people keep wanting to get into the "bitcoin exchange" business? Like, here are two facts about bitcoin:

  1. It is a decentralized virtual currency whose brilliant innovation is the use of a revolutionary blockchain technology to allow two people to transact in bitcoins without any central trusted party, like say an exchange.
  2. Bitcoin marketplaces have an uncanny tendency to blow up or be taken down by federal agents.

But, I mean, you do your thing Winklevii, have at it:

Now two of the biggest boosters of the virtual currency, Cameron and Tyler Winklevoss, are trying to firm up support by creating the first regulated Bitcoin exchange for American customers -- what they are calling the Nasdaq of Bitcoin.

A fun fact about Nasdaq is that it lists 3,100 different stocks. You go to Nasdaq with your dollars and exchange them for shares of Google or Apple or Facebook (sorry, I know that's a sensitive word around the offices of Winklevoss Capital) or any number of other companies. On the bitcoin exchange, you exchange your dollars for bitcoins, and that's it. You can get bitcoins. Maybe they'll expand to Dogecoins if it goes well? I don't understand why this is a business. The exchange will be "named Gemini, Latin for twins," which I guess covers the two things you can do on it. Buy bitcoins, or sell bitcoins. Okay. Elsewhere in inexplicably popular central clearinghouse businesses, here's something about another pretend Ivy League dating site.

Oopsies.

We talked a little about Canarsie Capital yesterday but it keeps getting stranger. It wasn't just run by "Owen Li, a 28-year old former Galleon Fund Management trader" who was very sorry about losing everyone's money; it was also co-run by Kenneth deRegt, "the longtime former head of risk management at Morgan Stanley." (Also it only lost $60 million of investor money; its $98 million of gross asset value included leverage.) Also "in March, Morgan Stanley, Carnarsie’s sole prime broker, executing and financing the fund’s trades, told the fund it was uncomfortable with its risk practices," and eventually kicked it out for excessive riskiness. (Canarsie went to Goldman Sachs.) How bad do your risk practices have to be to get fired as a client by the bank where you formerly ran risk management? Really quite terrible, seems to be the answer, since Canarsie lost basically all of its investors' money.

Elsewhere in oopsies, here is Roddy Boyd on EcoAlpha Asset Management, an impact investing hedge fund co-founded by the guy who, "as chief of AIG Global Investment Corp., engineered and oversaw perhaps the most economically destructive episode of the entire global financial crisis: AIG’s securities lending portfolio's headlong foray into mortgage-and asset-backed securities between 2005-2007," though that was a while ago.

Some executive compensation.

Is this a raise

JPMorgan Chase & Co. Chief Executive Officer and Chairman Jamie Dimon got his first cash bonus in three years as the board kept his total pay unchanged at $20 million.

Obviously you'd rather get paid in cash than restricted stock -- especially since, fun fact, the stock closed yesterday at $57.59, which happens to be the exact same price as a year ago -- so this is nice for him, while still allowing the board to say that his pay was unchanged. Elsewhere, "the average age of a CEO in the Standard & Poor’s 500 Index increased to 56.9 last year from 55.3 in 2004," and "83 percent of respondents to a quarterly Bloomberg Global Poll" think that banks will cut more jobs this year.

Meanwhile I'm sure Bill Gross is very well paid at Janus, but he's giving some of that back in expense ratios: He's "proud to eat his own cooking," has "more than $700 million of his own money in the mutual fund he runs," and "has 'no special arrangement' regarding fees on his investment in his funds." Those fees seem to run around 76 basis points, so around $5 million a year. That "no special arrangement," plus the fact that Janus seems not to have known for a while that most of the money in Gross's fund was Gross's, continues to make me laugh. I imagine Gross walking into his local strip-mall brokerage, with a fake mustache pasted on over his actual mustache, and innocently telling the broker "I like this Bill Gross fellow -- could I invest a few hundred million with him?"

Stuff happens.

Barclays fights back in dark pool case. RBC is buying City National"This offering was opportunistic in nature" is the sort of thing you have to say after you pull your $400 million high-yield deal due to market volatility, but it's still a bit unsettling. Understanding the role of debt in the financial system. Mike Konczal against dividend tax cuts. Chinese Chairman of Credit Suisse Venture Is Missing. Hedge Fund Activity in Manhattan Office Market Hits Record High. The most important building in American financial history may become a bowling alley.

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