Levine on Wall Street: IPhones, Francs and Gold Nuggets

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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Apple's earnings were pretty good.

"I'd like someone to put Apple's earnings into real perspective," says Mathew Ingram, "like say, the cost of building the pyramids, or sacking Troy for example." Here is an estimate that the pyramids would cost $5 billion to rebuild today -- not quite the right question but whatever -- so Apple's "record quarterly net profit of $18 billion" would pay for about three and a half sets of pyramids, with money left over for a nice 10-year rental on the plains of Troy. Other goofball perspective: Apple sold 34,000 iPhones every hour last quarter. "Apple's cash pile is the same as its market cap was when the iPad was launched." "Apple’s net profit grew 37 per cent to $18bn, topping ExxonMobil’s previous quarterly record of $15.9bn in 2012." Apple is big and a lot of people buy its products and those products are pretty expensive so it makes a lot of money, are the key takeaways here.

JPMorgan did well on the Swiss franc.

I mean. Don't take value-at-risk too seriously, especially when you're considering a pegged currency (even more especially a capped one), but "JPMorgan Chase & Co.’s foreign-exchange traders reaped a gain of as much as $300 million after the Swiss central bank roiled markets by abolishing its cap on the franc," which is quite a lot of money compared to JPMorgan's $8 million of average currency VaR last quarter. Like, if they just had a huge bet on the franc against the euro -- with a notional of over a billion dollars worth of francs -- then that would seem like an unnecessarily, and unexpectedly, large position. I get the sense, though, that at least some of the money was made on intraday trading on the day the cap was eliminated; when the foreign exchange market trades $4 trillion more than average in a single day, if you can trade a quarter of that volume and make 3 basis points per trade, then that gets you to $300 million. You can't really trade a quarter of the volume, but if you timed the giant intraday moves right, you probably did a lot better than 3 basis points.

Elsewhere in foreign exchange trading, the Wall Street Journal looks at FXCM's near-collapse this month, which was driven "by outsize bets made by foreign customers who aren't subject to U.S. regulations." And here is the story of how some U.S. companies hedged their foreign currency risk and are happy, and others didn't and are sad. The lesson is, always hedge ahead of a giant currency move that goes against you. And SaxoBank repriced a bunch of clients' Swiss franc trades and is now basically announcing, like, "OK, come sue us, we know you're gonna sue, let's do this," which can't be that fun for them.

Don't rob a bank, rob a bank's museum.

Well this is the strangest financial crime story since at least Monday's Russian ETF spies: "Three masked robbers smashed a stolen sport utility vehicle into the entrance of Wells Fargo’s corporate museum in the heart of San Francisco’s financial district on Tuesday, then held a security guard at gunpoint and made off with gold nuggets from a display case." Do people go to Wells Fargo's corporate museum? "Wells Fargo operates 10 corporate museums around the country, including in Alaska, Phoenix and Charlotte, N.C.," what? The San Francisco one has a stagecoach. "A bank spokesman said the stagecoach was not damaged in the heist." Every line here is quotable but the best might be this:

While the police say their preliminary estimates of the nuggets’ value is about $10,000, the gold has sentimental value to the bank, which takes its history seriously. 

More banks should be sentimental. "Sorry to foreclose on your house over a few thousand dollars of missed payments," they could say, "but it has sentimental value to the bank." 

Today in fund management.

Jeffrey Gundlach "voiced optimism for gold in a sprawling presentation punctuated with nursery-rhyme analogies (pat-a-cake, pat-a-cake = European Central Bank monetary easing)," and I guess you had to be there? Though I'm kind of glad I wasn't? He also "quipped that gold's yield (zero) is higher than that of Swiss bonds," which is a pretty good line. 

At Pimco, meanwhile, they're bullish on Greece, unlike Gundlach. Also, Mark Kiesel, Pimco's chief investment officer for global credit, explained disappointing results in Pimco's Macau exposure this way:

It definitely wasn’t a win for us in 2014, as the Chinese government really stepped up the anti-corruption campaign and the VIP business, which had been seen in previous years, was flat. The market is still growing but is definitely slower.

Ha! If you bet on corruption, you don't always win. But you win a lot.

Meanwhile at Point72, Steve Cohen's once and future hedge fund, Scott Braunstein left four months after arriving from JPMorgan, and here is just a lovely way to spin executive departures:

“Point72 remains focused on developing its own talent,” Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based Point72 said. “Roughly three fourths of our portfolio managers are now homegrown and in the past year, alone, eight analysts have been promoted to portfolio manager, with others in the pipeline.”

Peer to peer.

Banks are unpopular. If you build a business that disintermediates banks, people will probably like you. Until you get good at it and people start worrying about you. This is the high-frequency trading cycle, but since HFT firms basically avoided the spotlight when they were scrappy upstarts disintermediating banks, they only became famous when they were already an evil worrying force.

"Peer to peer lending" caught the public imagination as a scrappy disintermediating upstart, and that is cool. But I wonder for how much longer? "Marlette Funding LLC, started by ex-employees from a Barclays credit-card unit, said in a statement that it arranged more than $450 million in consumer financing after unveiling a website in March to match investors with borrowers," and it just feels a touch less cheery than previous incarnations of peer-to-peer lending. Former Barclays credit card employees. "Funding" in the name, rather than something fun like "Club." And Marlette "relies entirely on investment managers, banks and other institutions to provide capital," and "doesn't let retail investors provide funding." (LendingClub and Prosper do, though "peer-to-peer" investing is increasingly a misnomer, with institutional funding more prevalent.) Elsewhere, Prosper is getting into the medical lending business, which also strikes me as something of a downer.

 Oppenheimer did some naughty stuff.

Actually it let someone else do naughty stuff: It served as broker to a customer, Gibraltar Global Securities, "a brokerage firm that is not registered to do business in the U.S.," and let Gibraltar do bad stuff. (Allegedly -- Oppenheimer & Co. settled with the Securities and Exchange Commission and Treasury Department for $20 million yesterday, but the SEC's Gibraltar case is ongoing.) Gibraltar's alleged badness consists in allowing the sales of billions of shares -- worth millions of dollars! -- of restricted penny stocks in unregistered transactions, and also failing to withhold taxes. Twenty million dollars seems like a lot for failures of customer oversight, but on the other hand, one, the best way to crack down on penny stock scams probably is to go after reputable well-capitalized gatekeepers like Oppenheimer, and, two, like, money laundering is Bad, and if you have no procedures to catch Bahamian penny stock scams you're probably weak on catching sanctioned oligarchs and terrorist financing too.

Hmm, Hanergy.

"Our client at the moment is our main shareholder," says the chief executive officer of Hanergy Thin Film Power Group. "That is the point that makes other people suspicious." Yes. It goes on: Hanergy Thin Film sells equipment to Hanergy Group, "the world’s largest solar company by market value," at very high margins, but then Hanergy Group books rather less in sales to clients. This might just be because Hanergy is still ramping up its factories. "In a year or two, a lot of what you see as problems won’t be problems any more," says the CEO. "You will be able to see it is an amazing company."

Things happen.

Bloomberg has a new website. Greece's financial minister will keep his blog, and Greece isn't that keen on further sanctions on Russia. Does "Sharpe Parity" work better than "Risk Parity?" "The distinction between 'active' and 'passive' investors is largely irrelevant in a world where we all now pick baskets of assets inside the global aggregate." Columbia Law School's Blue Sky Blog is running a series of posts on U.S. v. Newman. Are SEC administrative hearings constitutional? Deutsche Bank's investment bank is pretty meh. GT Advanced shareholders are perhaps excessively optimistic (in bankruptcy). Ronald Barusch on the continuing GFI merger drama. "QWAFAFEW, which stands for Quantitative Work Alliance for Applied Finance, Education and Wisdom." "Skip a Handshake, Don’t Spray a Colleague’s Desk and Other Rules for Getting Through Winter." Congratulations or condolences on CFA Level I.

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