Hard Work, Scarcity and Golf
Here's a story about how Amazon is full of big ol' meanies. Jeff Bezos disagrees. I used to work in jobs that were very client-focused, and there was an obvious intrinsic unpleasantness to those jobs. Of course you work nights and weekends if it will make the client happy. And in my experience no investment bank or law firm creates as much customer happiness as Amazon does. So it stands to reason that the jobs there are extra miserable. Matt Yglesias points out that the misery is "in the remorseless pursuit of not-profits," and honestly I am kind of touched to know that thousands of Amazon engineers are giving up their nights and weekends, and thousands of Amazon shareholders are foregoing any profits, just so I can get free two-day delivery of books and dog kibble. Elsewhere here is Tyler Cowen on effective altruism.
Here's a Slate Money podcast episode about post-scarcity economics, Star Trek and Alphabet. I was struck by Cathy O'Neil's confidence that Google's advertising revenue is immortal and inexhaustible. It sometimes seems like people think that, in a post-scarcity world, the last money-making business will be advertising. Here, for instance, is Jaron Lanier:
If 3-D printers become good and ubiquitous, the number one question is going to be, can somebody make up an object and get paid for it? Just hypothetically, let's say 3-D printers are good enough to print out a new phone, which is conceivable, not immediately but it will happen, or to print out a new computer, a new tablet you'd want to use, or some other device. Is the company that operates the advertising auction system at the back end that's paying for the network connection the only party that makes money at that point?
I suppose it's entirely possible that advertising will be the last business (it creates scarcity!), but it's also possible that Alphabet's moonshots are a hedge against the risk that, in the far future, advertising won't be such a gusher of money for Google because people will have all the stuff they need. Except immortality. They'll pay Alphabet for immortality.
Elsewhere, here is a perfect story about the tech industry's gentrification of Mid-Market:
A recent walk with Ms. Dennison through the 30-block district, population about 25,000, included visits to community gardens, former jazz clubs, a senior center and a corner store used by drug dealers. It was interrupted when Jason Calacanis, an Internet entrepreneur, stepped out from his Tesla.
“In good conscience, I cannot have my employees here,” Mr. Calacanis said. “There is a false narrative that it is getting better here. I’ve seen stabbings, people defecating in the street.”
Emphasis added because my mental image of San Francisco is pretty much just wall-to-wall Internet entrepreneurs getting out of Teslas. Also: "This app randomly picks a top bar on Yelp, picks you up in an Uber and takes you there." And: "Why is Bitcoin forking?"
Here is an article from Friday about how the Securities and Exchange Commission pay-ratio rule can be gamed. "Employers can survey their workforce on any day within the last three months of their most recent fiscal year to define median pay," letting them exclude some seasonal workers; they can also exclude some foreign workers, ignore some amounts paid to chief executive officers, and "exclude people employed by contractors or other independent entities." Some of this is probably better thought of not as a matter of gaming but as a matter of incentives. If you think -- as the proponents of the pay ratio apparently do -- that the pay ratio is an incentive, and that companies will want to report lower pay ratios, then you have to think that companies will do things to reduce their ratios. Obviously they won't reduce CEO pay (see the first meta-rule of executive pay), and just paying workers more is expensive. So they'll do other things to reduce it, some of which are just harmless bookkeeping nonsense (picking a survey date that excludes seasonal workers), and some of which might have an economic effect (outsourcing more workers and using more contractors). I have idly wondered about the interaction between the pay-ratio rule and the "gig economy": The rule is an obvious incentive to have fewer low-paid employees, and the emphasis might be on the "employees" instead of the "low-paid."
Golf and information.
We hypothesize that golf courses act as important venues for investors to build social connections and gather investment information. We find systematic evidence that institutional investors located near prestigious golf courses earn significantly better benchmark- and risk-adjusted return. We argue that this reflects the benefits of sociability as our findings are stronger for golf courses with reciprocal guest policies that allow wider participation and increase when major golf championships rotate to the state. Their portfolios holdings reveal hallmarks of informed trading - greater concentration, greater selectivity/activity, and more frequent turnover. To establish a causal link, we exploit the fact that golf is a weather-dependent outdoor activity. We find that their outperformance occurs during times of low precipitation around golf courses, evaporating when bad weather keeps golfers off the greens.
Elsewhere on SSRN: "We find that CoCo capital may be less risky than bail-inable debt when lower priority is compensated by lower endogenous risk, which is beneficial as a lower bond yield improves incentives."
Promontory strikes back.
If you're in the business of advising banks on how to avoid confrontation with regulators, it is probably not the best look to be suing a regulator? But I guess Promontory Financial Group is out of great options, insofar as the New York Department of Financial Services has tried "to block the consulting firm from advising New York-based banks in some cases," which is not a great look either. So it's suing. New York's DFS is like a financial regulator without rules; here is how the Wall Street Journal puts it, rather charitably:
Anthony Albanese, who succeeded Mr. Lawsky, has continued pursuing novel crackdowns on banks and others. The Promontory penalty is the latest example: The agency doesn’t directly regulate the firm, and it didn’t cite any law or regulation Promontory had run afoul of.
Just, you know, didn't like that look on their faces. We talked about this before, and as far as I can tell DFS is just being petulant because Promontory, which was advising a bank, tried to advise the bank rather than just mercilessly slagging it to DFS. And since DFS doesn't seem to be particularly bound by law, it can take out its petulance on Promontory however it likes.
Elsewhere in lawsuits, and petulance, here (via Tom Hals) is a Delaware Chancery Court opinion in a "long and unfortunate litigation -- involving an attempt by a homeowners association to compel a homeowner to trim foliage." The Delaware Chancery Court is a small elite court that deals with the most sophisticated questions of corporate law and also a grab-bag of other equitable cases, including hedge trimming.
Friday was 13F day.
So if you want to know what Dan Loeb, David Einhorn, Nelson Peltz, David Tepper, Carl Icahn, George Soros or Warren Buffett were up to last quarter, now is your chance. Apparently a lot of "tiger cubs sold some of their shares in Baidu and Alibaba."
Nav Sarao is out!
"Navinder Singh Sarao, the British futures trader charged by United States authorities with contributing to a sudden plunge in American stock markets five years ago, was assigned a reduced bail at a court hearing on Friday, allowing him to be released from custody." He'd been in since April, and really four months in jail sort of seems like the right punishment for spoofing? If he's extradited to the U.S. and convicted, "he could face a prison sentence of more than 300 years," which is some indefensible stupid barbarism.
People are worried about bond market liquidity.
Right here at Bloomberg View there is this editorial on "Heading Off Bond-Market Tantrums." And the New York Fed's "blog series that discusses different aspects of the evolving nature of market liquidity" kicks off today with this post on "Has U.S. Treasury Market Liquidity Deteriorated?" The answer is basically no: Bid-ask spreads "have been relatively narrow and stable since" the financial crisis; order-book depth seems to be declining, but "is not unusually low at present by recent historical standards," and price impact is rising, but "is not now especially high by recent historical standards."
The financial crisis made clear to everyone that the existing regulatory apparatus was inadequate for the emerging market-based credit system, as well as the larger financial globalization trend. In the regulatory response that followed, we shifted the matched book dimension of market-making substantially to central clearing counterparties, and the speculative book dimension off of the balance sheets of banks (the Volcker Rule). This shift was not an inadvertent mistake, but rather a deliberate attempt to separate the liquidity risk of matched book (which arguably requires and merits public backstop) from the solvency risk of speculative book.
People are worried about stock buybacks.
Here is James Surowiecki on "The Short-Termism Myth":
As a whole, though, corporate spending on R. & D. has risen steadily over the years, and has stayed relatively constant as a share of G.D.P. and as a share of sales. This year, R. & D. spending is accelerating at its fastest pace in fifty years and is at an all-time high as a percentage of G.D.P. Furthermore, U.S. companies don’t spend notably less on R. & D. than their international competitors. Similarly with investors: their alleged obsession with short-term earnings is hard to see in the data. Several studies in the nineties found that companies announcing major R. & D. investments were rewarded by the markets, not punished, and that companies with more institutional investors (who typically have shorter time horizons) spent more on R. & D., not less. A 2011 Deutsche Bank study of more than a thousand companies found that those which spent significantly more on R. & D. than their competitors were more highly valued by investors.
I wrote more about ITG's dark-pool fine, and about Edward Jones's municipal bond underwriting fine. Big SEC week last week; I guess they had to get everything out before going on their end-of-summer vacations.
Merkel Seeks to Head Off Opposition to Greek Bailout. Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment. Former Mafia informant is "preparing financial statements on behalf of a number of penny-stock companies." Aswath Damodaran on pricing trophy assets. "'Talking to people who have been in the market for 20 or 30 years is interesting, because they did see double-digit inflation,' says Edward Acton, a U.S. government-bond strategist at RBS Securities, who turned 23 two months ago." Business school vs. "boot camps." Don't invest in classic cars. Don't even bother coming to work on summer Fridays. A Chrome extension to replace the words "a Chrome extension" with the words "a Chrome extension to replace the words 'a Chrome extension' with the words [etc. recursively]." Man is good in bed. Man in Bear Costume Harasses Mother Bear, 2 Cubs in Alaska. "There was a rock that looked like a bear’s butt."
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