and the RMB

Also a surprisingly chill Greek bailout, and the usual liquidity and buybacks. And Red Skelton.


Welp. If you have a giant super-profitable public company that throws off wads of cash, and you are using that cash to tinker with driverless cars and human immortality and other pet projects, then it seems to me that you are doing it right. And if you silo all of the pet projects into their own subsidiaries and break them out separately from the profitable companies, isn't that ... worse? I feel like I am constantly reading about how public market investors are excessively short-term-oriented and agitate for companies to do share buybacks and spin-offs rather than invest in fundamental research. If you hide the unprofitable fundamental research, maybe they'll let it go. If you package it into a neat little box, won't those short-term-oriented investors agitate for you to get rid of the box? Like, now you are explicitly telling them where you are burning their money, and how much of it. Here's a list of "Alphabet's Most Notable Businesses Besides Google." Calico, the human immortality one, is mentioned on one page of Google's 10-Q. Life Sciences, Nest, Fiber, Google Ventures and Google X are not mentioned. Now those will all be separate companies, though only Google and Alphabet "will report revenue lines — that means no further disclosure for the other divisions." Weird.

Or there is this bit of wordplay:

We liked the name Alphabet because it means a collection of letters that represent language, one of humanity's most important innovations, and is the core of how we index with Google search! We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!

Is that for real? Like, Larry Page and Sergey Brin are going to be evaluating the real-time performance of their human-immortality division to make sure that it is generating returns above the S&P 500, adjusted for its beta? How would that work? One theory is that Alphabet is about restructuring the company to invest more in long-term, moonshot projects, free from the demands of immediate profitability. (See, e.g., Farhad Manjoo.) But it had that freedom already. Alphabet's tidy-mindedness and focus on investment returns seem like constraints on that freedom. Re/code reports that one purpose of the restructuring is to give "more transparency to Wall Street (particularly for the investors clamoring for tighter governance and clarity around capital allocation)." CNBC reports: "Markets are responding to the prospect of greater balance-sheet accountability and the chance that Alphabet will spend slightly less money on speculative endeavors, Tigress Financial Feinseth Partners CIO Ivan Feinseth said." Here at Bloomberg View, Justin Fox writes that "if the Google guys are to succeed in their new career as conglomerateurs, they’re probably going to have to get really good at saying no." That is a grim prescription for Google!

Still. Running Alphabet, and leaving Google to new CEO Sundar Pichai, probably does free up Page and Brin to focus on the moonshots. (Also it might be a way to keep Pichai in the face of a competing CEO job offer.) Google has dual-class (er, triple-class) stock, so even if investors agitate for short-term results Page and Brin can tell them to get lost. The Alphabet structure might make it easier to do acquisitions, in a Berkshire Hathaway style where the visionary founder comes with the acquired company and runs it separately rather than folding it into Google. (Also minority investments, for that matter: Om Malik suggests an Alphabet investment in Tesla that keeps Elon Musk in charge.) Putting the moonshots in separate companies might make it easier to hire the best engineers to work on them, though conversely it might make it harder to hire those engineers to work on Google itself.  

Here's a profile of Pichai. Felix Salmon's alphabetical list of reasons for Alphabet is good. Here is Tyler Cowen on "positive evidence on conglomerates." Here are reactions on Twitter. Also there's a Hooli joke Easter egg, I guess to show that Google is still hip or whatever.

In other tech news, Twitter was up 9 percent yesterday after billionaire interim chief executive Jack Dorsey bought $875,000 worth of stock. Seriously there were a couple of hours yesterday when that was tech news.

The yuan.

Presumably the People's Bank of China devalued the yuan by 1.9 percent mostly for economic reasons, to put "a greater emphasis on efforts to combat the deepest economic slowdown since 1990 and reduce the government’s grip on the financial system." But a weird aspect of the devaluation is how it affects China's goal of getting the yuan included as a global reserve currency in the International Monetary Fund's Special Drawing Rights system. "Authorities had been propping up the yuan to deter capital outflows, protect foreign-currency borrowers and make a case for official reserve status at the International Monetary Fund," says Bloomberg, and Christopher Balding says that "China might be giving up on its SDR aspirations with this move." "IMF economists and central bankers who adjudicate reserve currency status take into account whether a central bank forces devaluations or revaluations in a way that distorts the operation of a free market," notes Robert Peston, suggesting that the devaluation may be a setback.

On the other hand, the devaluation isn't just a devaluation; it is also a move to a market-based exchange system:

Effective immediately, market-makers who submit prices for the PBOC’s reference rate will have to consider the previous day’s closing spot rate, foreign-exchange demand and supply, as well as changes in major currency rates, the central bank said in a statement. Previous guidelines made no mention of those criteria.

“The new fixing will be quoted based on the previous day’s closing, which is a real market level,” said Becky Liu, a Hong Kong-based senior strategist at Standard Chartered Plc. “The band will become the real band. This is a big step, and bolder than we expected.”

The Financial Times reads this move as part of China's "push to have its currency accepted as a global reserve by the International Monetary Fund," since the IMF's concerns about the yuan include its not-quite-market-determined exchange rates. Mohamed El-Erian argues that "By opting now for a more market determined system for its exchange rate, China has weakened its currency in a way that potentially reduces external criticisms," including from the IMF. And here is an FX strategist arguing that the move is aimed at SDR status.

What does it mean for the rest of the world? You know, currency wars, etc. El-Erian says that "facing difficulties in generating internally-driven growth, China is joining others in an attempt to 'steal' it from elsewhere." Peston notes that, "in terms of US manufacturers and exporters, Beijing has done the monetary tightening that arguably the US economy needs." Tyler Cowen points out that "there has never been a better time to visit China."

Greece has a bailout.

I don't really understand:

Greece reached an accord with creditors on the terms of a third bailout, paving the way for national parliaments to vote on the deal before an Aug. 20 payment falls due to the European Central Bank.

That's like nine days! What will they do with all that time? It is strange to see the Greek crisis move in the direction of less brinksmanship, though at least "The talks successfully wrapped up in the early hours of Tuesday." You wouldn't want anyone getting home in time for dinner. Elsewhere, here is an argument that the Greek crisis saved Germany more money on Bund interest than it cost in bailouts, which is a good reminder not to confuse macroeconomics with accounting.

People are worried about stock buybacks.

Here is Andrew Ross Sorkin on politicians' efforts to regulate or ban corporate stock buybacks, and on the debates about buybacks and short-termism, buybacks and stagnating wages, etc. "It is hard to tell a company how it can or cannot spend its money," says Sorkin, and my anecdotal impression is that most politicians actually find it pretty easy. Elsewhere more companies are facing multiple activist investors:

“There just aren’t enough good ideas out there,” said David Rosewater, who heads Morgan Stanley’s activist-defense group. “Activists are bumping into each other all over the place.”

"Do another buyback" is, I suppose, always a valid idea.

People are worried about bond market liquidity.

"Be Ready for the Next Investing Crisis," advises the Wall Street Journal, and one potential crisis is that "a bond-market scare could spark a rush of selling by individual investors in ETFs and mutual funds," etc., you know the rest. One proposed solution is "shifting to bonds that are less frequently found in funds and ETFs, such as residential mortgages," and I love both the idea that residential mortgages might be a refuge in the next crisis, and the idea that the way to soothe your bond-market liquidity worries is to buy less liquid bonds. Elsewhere Alan Greenspan is worried about a bond market bubble.

A plea deal.


Irwin Lipkin, 77, agreed he owes the government a Rolex watch, a well-known painting by Red Skelton and $170 billion cash on Monday, and was sentenced to six months in jail Wednesday on charges of conspiracy and making false statements in employment records.

Lipkin also agreed to give up a vacation home in Delray Beach, Florida as part of his plea deal, but he was allowed to keep another home in New Jersey, his stamp collection and another Red Skelton painting.

Lipkin is a former Bernie Madoff employee who cooperated with the government. I realize that Madoff's scheme generated a lot of money but I am still at a bit of a loss about how Lipkin will come up with $170 billion in cash without selling his stamp collection, or his last Red Skelton painting. Also Red Skelton seems to have painted mostly clowns, which seems appropriate.

Me yesterday.

I wrote about the Securities and Exchange Commission case against Guggenheim Partners, which involved a loan from a client -- signs point to it being Michael Milken -- to a Guggenheim executive that the SEC didn't like. Charlie Gasparino reported that the client was Milken.

Things happen.

"Global mergers and acquisitions are on pace this year to hit the highest level on record." Berkshire's deal for Precision Castparts wasn't that expensive, for 2015, and highlights the growing role of Todd Combs. Fortress is doing well in subprime. BlueCrest is being sued over Libor manipulation. Hacker insider trading! Argentina won a Second Circuit appeal. Securities Enforcement 2015 Mid-Year Review. Bill Ackman vs. John Carney. President Donald Trump Responds to a Nuclear Iran. A Midnight Madness sample puzzle. Is Now the Time to Buy a Case of Château Lafite? "What do you do when you don’t have 'there’s nothing to do' as an animating principle?" New York City Is Getting A Giant Ball Pit For Grown Ups. New beer-mile record.

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