Navesink Blog
The hidden $11 Tn hedge fund industry
$11 Trillions worth of hedge funds, half the industry, is barely disclosing any information to the general public. The SEC, which already has valuable information on this well-performing universe, is requesting more disclosure in their Forms PF.
Consulting Agreement: Well Wishes for 2022
Navesink International [Company] and all of its financial market professionals [altogether Experts] will be providing you [Reader] well wishes for 2022.
Topics covered in the services may include health, prosperity, happiness and joy, or any other positively connotated matter.
Another Ponzi style – silver trading
Yet another Ponzi, this time with silver trading.
Gaylen Rust from the Rust Rare Coin company, may spend the next 19 year in prison for a $200m Ponzi fraud spanning two decades.
NatWest Pleads Guilty to Manipulating Treasury Markets
NatWest has admitted to market manipulation to the SEC.
The guilty admission will cost much more than the $35m fine.
It may become the SEC’s new policy.
Buy Now Pay Later (BNPL) attracts regulators
The party is still going, but the band’s tune has changed.
Regulators are investigating the Buy Now, Pay Later (BNPL) industry.
Evergrande has defaulted. Now what?
China Evergrande Group has officially defaulted on $82 m of coupons.
Kaisa Group failed to repay a $400 m bond a few days before.
What happens now?
How to Lose $2 Billion in 10 Years: Unpaid Bills Pile Up for Former Hedge-Fund Star
You always see the glitz around hedge fund portfolio managers – the parties, the mansions, the cars and the boats.
It’s not always like that. This WSJ article reveals quite a story of rags-to-riches.
D.A. Vance: Michael Steinhardt Surrenders 180 Stolen Antiquities Valued at $70 Million
Art is an expression of beauty, proficiency, creativity, or emotions.
It is also an asset class and an investment.
Like all investments, art has its fraudsters.
Are we ready to die for Dantzig?
Those that fail to learn from history are doomed to repeat it. Luckily, the human race learns a few things sometimes.
We certainly need those lessons to handle the current Ukrainian situation.
The Turkish Lira keeps on falling
The intervention orchestrated by the Turkish Central Bank to sustain the Lira has turned ineffective. The Lira fell further.
Erdogan has therefore replaced his finance minister with an even more loyal executive.
Turkey’s fall
The Turkish Lira is free falling. It has been weakening for years (from parity to 12 TRY to the dollar), but the 15% fall on Tuesday is causing a lot of pain and concerns.
It could be intentional.
The Rise of Money Launderers on Snapchat and Instagram
An interesting British documentary about how money mules are recruited by larger money launderers, and how easy it is to lure young people into crime for a few grands.
Evergrande default is highly likely, S&P says
This is not good. If you wanted a trigger for a recession, this could be it.
Standard & Poor’s says that Evergrande will default – it cannot sell new constructions.
Leveraged up, leveraged down
Leverage has benefits on the way up, but it has drawdowns on the way down.
Exchanges need to pay the winners, so they HAVE to go after the losers.
You will get sued, and your house and savings are theirs in most cases
Market up, vol up
We are currently in the unusual market situation called “market up, vol up”, where volatilities go up while the market rallies. It is driven by retail purchases into the tiny calls, notably for the small caps and the meme stocks.
Panel Ponzi Prison
A San Francisco couple, founders of a legitimate solar panel company, were sentenced to 15 and 30 years in prison for orchestrating a Ponzi related to equipment leases. They had 150 collectible cars and 32 houses.
Rates rise, curves flatten, hedge funds lose
There have been some sudden movements in the global rates recently – rate rises, curves flattening, inflation threats.
The big and famous in the hedge fund world are raking significant losses.
The Good Samaritan who stole millions
The good Samaritan William Neil “Doc” Gallagher was actually a Ponzi artist defrauding the Texas Christian community.
He has been sentenced to three life sentences plus 30 years.
Nigeria banned cryptos, introduces CBDC
Nigeria had banned cryptocurrencies earlier this year (to little effect). It has now introduced its CBDC, the eNaira. Currency and government stability are the likely reasons. Other countries will follow.
The pros and cons of crypto markets (vs. regulated markets)
There are structural issues in both the crypto and regulated worlds. But how deep and how frequent are they? Here is a review of Cryptos’ pros and cons.
Competition is for Losers
The most powerful cartels are perfectly legal, and far from James Bond villains. They are doctors, landlords, universities…
The dark web’s regulator
The Cybercriminal underground community has a regulating authority!
It uses disciplinary procedures to reduce the risk for the overall community.
The hidden costs of the new Bitcoin ETF
Heavy demand for the first bitcoin ETF, which was listed yesterday.
But be wary of hidden costs. BITO is an expensive ETF to carry.
Wall Street, Companies May Have to Give Up More to Settle With SEC
“Neither admit nor deny” may be removed from SEC settlements.
As part of the SEC’s new stated intent on deterrence, the agency will start asking again that wrongdoers admit guilt.
The world’s largest Ponzi is bursting – the Evergrande default
Evergrande, China’s second largest real estate, will default on bond payments in the coming days. The company, bloated with $300 bn of debt, is typical of the $62 trillion Chinese real estate sector.
Evergrande’ s default may bring the sector and the Chinese economy down with it.
A Fed Cryptocurrency?
A few interesting comments from Fed officials about the likelihood of a US CBDC (a Central Bank Digital Currency would be fungible into our daily US dollar).
Pandora papers – Panama papers on steroids
“Pandora papers”. The name will make thousands of influential people shake in their boots. The new trove of leaked private financial records is the largest ever. It throws light on the world of hidden offshore accounts. Again.
SEC charging option traders for arbing the maker-taker model
Option traders were charged by the SEC for ‘painting the tape’ on meme stock options after arbitraging exchanges on their Maker-Taker model. Explanations.
How about using options for your next insider trades?
Somebody gave you an insider tip and you want to use options? Think again.
The SEC sees you coming. Good luck justifying yourself to a jury. The stick will hurt.
Cryptocrook: 7½ years of jail. More like him to come.
You remember our cryptocrook? Quant WizKid, market-neutral hedge fund, Cryptocurrency arbitrage great returns, $90m AUM… Except that it was a Ponzi.
His sentence just came out: 7½ years of jail. Here are the explanation & the context.
Why is Goldman getting into BNPL?
Goldman is paying $2.24 bn in stock to acquire GreenSky, another Buy-Now-Pay-Later provider, at a 50% premium.
Why pay such a premium?
Insider trading, Mr. Branson?
Virgin Galactic’s successful flight may have brought joy to Mr. Branson, but it will also bring some after-party headaches.
The entrepreneur and space explorer is accused of basic earthly financial misgivings for this same flight – a pretty serious insider trading issue.
Infinity Q is a warning to investors
Investors are not happy with Infinity-Q, the derivatives hedge fund that had a slight ‘mismarking’ and is now in a wind-down. We’ve learnt a few more things since the announcement.
$7bn tax due – Renaissance Technology
Renaissance Technologies has agreed to pay $7bn in tax to the IRS. That’s a nice chunk of change, even for them.
Here is the issue at stake.
The long term expected value of your ETNs is zero
UBS got flack for recommending VIX ETFs to its clients. This suitability case has in fact deep roots in a significant ETF classification challenge: many product databases are mishandling the wide diversity of ETNs. Significant litigation is to be expected as a result.
Golden Clink – Spoofing doesn’t pay
When you are spoofing gold futures, don’t brag about it in chat rooms.
A few gold futures traders got one year in the clink for market manipulation.
Cum/Ex is officially a money grab
The German Supreme Court has made it official; the Cum/Ex was not a loophole but a blatant money grab.
The two Warburg executives can expect jail time, and their firm a bankruptcy.
Many others will follow.
SOFR has a term structure now.
The ARRC has recommended the CME’s methodology to calculate a term structure for SOFR. This is big news.
This article explains SOFR’s weaknesses, what a term structure is, why we need one and how the CME calculates its own.
Transfer pricing, hedge fund edition
In a new version of the transfer pricing strategy, Tom Sandell virtually relocated his hedge fund from New York to Florida to avoid NY tax liabilities on his deferred comp.
The story didn’t finish well. A whistleblower and the NY AG forced him to cough up $105m.
LIBOR: the most important number in the world is going away
LIBOR, the most important number in the world, had a good run for the last 50 years, but it is going away.
SOFR, its replacement, is not subject to manipulations but has a host of problems.
The transition is difficult.
Bye-bye, bitcoin: It’s time to ban cryptocurrencies
Not all central bankers and diplomats have a good opinion of cryptocurrencies.
They are assessing their costs & benefits through articles in prime newspapers.
One diplomat/economist just called for their outright ban.
Visualized: The Biggest Ponzi Schemes in Modern History
A summary of the largest Ponzi schemes in history, with a visualization that is a pleasure to the eyes.
The SEC’s specious space SPAC
The Momentus / Stable Road merger is the epitome of what can go wrong with SPACs. It is a story of dreams, greed, and lies.
The SEC made an example out of it. The plaintiff law firms are jumping on the bandwagon too.
SEC: Don’t even think of muzzling whistleblowers
Guggenheim had restrictive language against whistleblowing in its compliance manual. The SEC reviewed the manual and fined the firm $209,000 – before any whistleblower was silenced.
The message is clear; the SEC will not tolerate any whistleblower muzzle.
And the largest FINRA penalty ever goes to… drum roll please… Robinhood!
FINRA slapped its largest penalty eve, $70m, to Robinhood for numerous and shocking failings.
That fine will raise the firm’s IPO price.
The 2-and-20 model is broken. Hedge funds are great.
The 2-and-20 are decried as enormous and one-sided fees. Investors are angry at the poor net performances. The press is pointing at large redemptions in a failing industry.
In other news, the weather is beautiful in hedge fund land.
Defund the IRS? Done
The Biden administration is planning a significant IRS budget increase so that the agency can effectively collect what it is owed. The investment will pay for itself multiple times. The “Tax Gap” now stands at an enormous $1 trillion per year. “Defund the IRS” has been the policy of the decade.
Renaissance underperformance and redemptions – not for everyone
Medallion is Renaissance’s flagship fund. It was up 75% in 2020. Unfortunately, it manages only the employees’ money.
All the other investors were down ~30% during the same period. Not as great.
Redemptions ensued. $11 bn of redemptions now.
Should Central Banks issue digital currencies?
Central Bank Digital Currencies are very different from cryptocurrencies. Cryptos will be used by unsavory countries. CBDCs will be used by democracies and bad actors alike.
Here are examples of both types, as well as the challenges the Federal Reserve faces in creating a digital dollar.
The first NFT class action is out
The Rosen Law Firm has filed the first NFT class action, which accuses Dapper Labs and the NBA of selling $500m of unregistered securities to US investors, as per the Howey test. The firm is also slow to pay back investors who sell their NFTs.
The case will be followed closely by the new digital litigation industry.
The state of crypto hedge funds
PwC released its annual Crypto Hedge Fund report; it contains many interesting statistics – fees, size, investor source, strategies, liquidity, performance…
The end of corporate tax shenanigans? The global minimum tax
Corporate taxes have been decreasing for the last decades, the result of tax competition between countries, tax havens, as well as corporate tax shenanigans. The finance ministers of the G-7 have now agreed to a global minimum rate of 15%. This is big news, with important consequences.
Cum/Ex: the first jail sentence is frightening German finance
The first jail sentence has been pronounced in the Cum/Ex tax fraud. The fine is a death knell for one of Germany’s oldest private banks. The judgment is causing frights in board rooms and trading floors.
Crypto-pumps: the widespread pump-and-dumps schemes in cryptocurrencies
Pump-and-dump are ubiquitous in crypto currencies. The schemes are well organized online groups, acting for the explicit purpose of manipulating currencies.
Organizers are front-running their groups and make great returns for themselves, so why would other participate? For hubris and gambling fever, say academics.
Regulators are absent, and the situation will deteriorate. This is the long-form review of this Far West of modern ages.
Wirecard, fintech fraud and supervisory blunder
The credit card processor was actually a purpose-built money laundering scheme.
Wirecard tricked its auditors, its board, external investigators. It retaliated against whistleblowers. With the support of its regulator.
That wouldn’t happen over here, but could it? Thoughts?
Volmageddon, miscalculation, new regulation?
On February 5th, 2018 (Volmageddon) the volatility reverse ETF XIV lost 96% of its value in the space of a few hours. Its iNAV was also miscalculated for an hour.
We have now discovered why: S&P Dow Jones was understaffed and did not release an ‘auto hold’ safety.
This human error contributes to current debate on the need to regulate index providers as investment advisors.
China isn’t a threat. America is the world’s only superpower
We have all heard that China is a growing economic & military threat to the US and the world order. But is it really?
Michael Beckley’s book ‘Unrivaled: Why America Will Remain the World’s Sole Superpower’ demonstrates it isn’t, says The Atlantic’s David Frum. Here is why.
The Libor manipulation whistleblower takes the entire CFTC pot
The risk manager who blew the whistle on Deutsche’s Libor manipulation is entitled to a $100m award.
That’s a problem. It would empty the coffer for the entire program, and block other actions.
Dogecoin Rap unwrap – social media push crypto to a new high price.
The Dogecoin Rap video is funny and right on cue, if you listen carefully. But crypto can only go up via social media advertising, experts say.
We have seen such exuberance in the past. But now the GameStop Redditors who bankrupted hedge funds say that Dogecoin is next.
It very much looks like a “pump”, as in “pump-and-dump”.
Robinhood: side effects include headaches, suicide, addiction, anxiety, withdrawals. And IPO.
Robinhood has demonstrated and deleterious effects on day traders, including enormous tax losses, suicide, anxiety, addiction.
Meanwhile, the firm is the subject of major regulatory and legal procedures, whose outcomes are hidden or unknown.
The firm’s IPO looks very much like passing on the hot potato… again to unsuspecting and inexperienced traders.
Non-Fungible Tokens in Non-Fungible Markets
Non-Fungible Tokens are the new asset class of digital art, and the spearhead of ‘decentralized finance’. Can with reconcile innovation with good sense? NFTs with regulations?
This article reviews their nature, their legal & regulatory difficulties, pinpoints extreme examples, highlights their volatility and more importantly, asks how a digital economy could be constructed around these loosely regulated assets.
Turkish crypto founder vanishes with reported $2bn
The founder of a Turkish crypto exchange runs away with $2 billion from ~400,000 individuals.
The last nail for binary options?
The SEC has hit yet another nail in the binary option coffin, and what a big nail that is. SpotOption was the industrial-size engine behind this global scam.
This article explains binary options, what their true risk really is, how some have weaponized it, the SEC’s actions, as well as shares comments from the investigative press.
SPAC or SPAM, the aftertaste is sour
SPACs, the new blank check companies are not delivering their unicorn promises. Even the prophet’s recommendations are not performing. Surprisingly, Chamath Palihapitiya is nowhere to be seen.
ICAP, the spider in the Cum/Ex web
German prosecutors are taking numerous financial institutions to courts over the Cum/Ex fraud, and the banks are suing each other to escape the dues.
The proceedings show ICAP at the center of this web of frauds.
Archegos: the questions nobody asks
What happened at Archegos? A lot has been published already, but many critical questions have still not been asked. After a factual summary / press review, this article asks the missing critical questions.
“I’m going rogue”, claims the principal
Guy Gentile is a principal with a checkered past: pump-and-dump, lack of registration, soliciting US customers from the Bahamas… He’s not hiding that he went rogue.
He just got sued by the SEC for evading US stock trading regulations. Again.
Cannabis: Wild West meets Wall Street
The cannabis industry is growing up, getting sophisticated. Perceptions are changing, but regulations are inconsistent. The smart money has arrived.
Here are the regulatory, financial, and investment challenges, as well as the opportunities, driving this rapidly evolving market.
The Tesla and Bitcoin lures
Two articles coincide into a disappointing conclusion. The casino markets will lure a chunk of the stimulus money into bad investments.
Buy Now Pay Later, the new payday loans
Buy Now Pay Later (BNPL) is the new form of credit used by 1 in 3 US consumers, and growing at 40% per year. It’s the new payday loan business.
This report explains what BNPL is, who uses it, how much it grows, and what this business really is about. The review asks questions to ponder about this new funding business.
SPAC, off-the-shelf dream?
The blank check companies are raising billions in IPOs… but for how long? Here is the SPAC 101 manual: nature, popularity, ego crisis… and even options!
The SEC’s new priorities: climate, seniors, cryptos & fintechs
The SEC has released its new sets of priorities for 2021. Here they are. Climate & ESG risks, disclosures and policies will be the focus #1. Retail investors, seniors, retirement savors: Reg BI and Fiduciary Duty compliance Information Security & Operational...
4.25% repo on 10Y and other volatility warnings
This week saw some really unusual moves, 10Y repo, intraday volatility, stock rotations, A harbinger of more volatility to come?
T+1 ?
Should US stocks settle T+1? The current T+2 settlement date is considered antiquated, and the Robinhood affair (gee, them again???) has relaunched the debate. Here is a review of the DTCC’s proposal, as well as an idea for derivatives traders.
Adult supervision needed in the crypto trading rooms
The SEC and the NY AG are suing CoinSeed for lack of registrations and multiple other counts. That’s a cold shower for the crypto industry. Spoiler alert: adult supervision is needed.
Geode hedge fund, loses big on volatility bets during COVID
Geode handles $700 bn of Fidelity’s index tracking assets. Geode Diversified, the much smaller hedge fund business, took a 36% loss on COVID’s volatility rally. It is now getting the axe.
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Infinity Q, the new variance swap skeleton?
Infinity Q may be the new variance swap skeleton. The New York hedge fund has just been suspended by the SEC pending valuation of its variance swaps and its full liquidation.
The fund’s main investor is handling the fund, while the founder is on administrative leave.
Should index providers have oversight?
Index providers provide research with some discretion on trillions of assets. They move markets. Their errors are costly.
Should those ‘data providers’ become ‘investment advisors’? The SEC is considering it. Two academics explain why and how this should be implemented.
Roaring Kitty is a Wall Street lion
‘Roaring Kitty’, the rebel redittor behind GameStop, is actually a registered principal. His actions and background will harm him, his employer, and will change the industry.
This post explains Keith Gill’s actions, his investment and his supervisory background, and the responsibility of his employer, as they are stated in the class action lawsuit. We ask questions and ponder the long-term consequences.
Grandma ate the wolves
The billionaire matriarch of the Schottenstein family was being taken advantage by her own two grandsons. So grandma ate the wolves.
She brought her two JP Morgan bankers to FINRA and obtained the largest award since 2018 – $19 millions.
Are the Robinhood traders going after the VIX?
‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett
Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.
The high price of free trade
Free doesn’t mean without cost. Payment For Order Flow brings benefits to the public, but there are drawbacks to this new execution approach.
This article explains what Payment For Order Flow is, the role of the market-makers, as well as the benefits and the drawbacks of the approach. It highlights the difficulty that SEC will meet in smoothing out those issues.
Paul Mora receives the first Interpol warrant in the Cum/Ex tax trading strategy
The first Interpol warrant has been issued in the Cum/Ex tax trading case.
Paul Mora, looked for by Germany, Denmark, and Belgium, is currently in New Zealand. Mr. Mora said that “he would skip his tax fraud trial because of New Zealand’s low Covid-19 infection rate and argued that he wouldn’t get a fair hearing in Germany.”
Sure.
How to compound your regulatory problems
One of Credit Suisse’s top bankers was up to no good. The firm was warned and did nothing.
This new scandal is unfortunately far from being the first for the Swiss bank. Regulatory investigations (and provisions!) are actually pilling up.
This article explains the last scandal, in the context of the firm’s recent compliance woes.
Cryptocrook
Cryptocurrencies are new and different. Thieves are not.
A young quant trader who had raised $90m for a market-neutral arbitrage fund has managed to waste most of the money. This article shares the details.
Another Ponzi – $1.7 billion and 17,000 investors
The managers of GPB Capital have been using the life savings of many retirees to fund their lifestyle. They just got charged by the SEC.
From promises to arrests, GPB’s downfall is a textbook case of what can go wrong when investing. This article lists the initial red flags, which any investors should be wary about, as well as the many steps of their downfall.
The Sherwood Forest of financial markets
Robin Hood is alive and well. He has left the dark forest of Sherwood for the spotlights of social media and financial markets.
This short article introduces the actors of the play and shares the most recent acts/scenes.
Is the main theme of the play still relevant today?
The revenge of the retail trader
GameStop’s rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.
Macro uncertainty as predictor of market volatility
A good note from Ralph Sueppel on the relationship between market volatility and macroeconomic uncertainty.
The schizophrenic behavior of Mr. Market. A bi-modal view of option-implicit asset return expectations
Skew is well explained by the sum of TWO return expectation Gaussians. The model reviews these distributions and leads to an interesting market structure interpretation, with applications in asset allocation.
Europe will regret stealing London’s finance business… NOT
Looks like the Square Mile isn’t so sure about Brexit. The Bloomberg editorial board, for some unexplained reasons, is asking Europe to play nice with London.
I beg your pardon?
Is UK Inc. just fishing? Let’s hope not, for Brexit’s sake
Brexit is a catastrophe for the fishing industry, despite being a critical issue in the debates. Unfortunately, that 0.2% of the UK’s GDP may only be the tip of the iceberg.
So far, the government is asking for patience.
SEC’s former whistleblowing chief sues the SEC for changes to the whistleblowing program
Jordan A. Thomas, the former whistleblower program manager at the SEC, as well as a leading plaintiff attorney, is suing the SEC for changes to the program.
This article explains what the SEC whistleblowing program is, why it is so successful, and why you should consider it if you see fraud or crime.
You can run but you can’t hide – the end of anonymous US shell companies
The Corporate Transparency Act, enacted in the Defense Appropriation bill of January 2021, is a game-changer for financial investigators. It prevents bad actors from hiding behind anonymous shell companies – right here in the United States.
What is an expert witness?
This short video explains what an expert witness is, and why Navesink International has a unique position in the securities litigation industry.
The role of the expert witness, practically speaking
This second and last short video explains the role of the expert witness, practically speaking.
Sanjay Shah is charged with stealing $1.6b from Danish tax authorities
The fight against one of the largest frauds in banking history (Eur 55 bn and counting) is progressing, with the indictment of Sanjay Shah by SKAT, the Danish Tax Agency.
Our article explains the Cum/Ex fraud, as well as ‘dividend arbitrage’ activities in general.
My grateful thanks to Gary Cohen, financier and social media extraordinaire
My grateful appreciation to a new friend/my friend Gary Cohen (https://lnkd.in/gzE3Nvj) for his time, his efforts, as well as his top digital media skills who helped me recreate the Navesink International website and optimized it from an old-world static site into a new world WordPress site. Gary brings together a 1st class financial background, well-honed management skills, professionalism, and true digital optimization/social media know-how. Thanks to his expertise and continued efforts, Navesink International now has a dynamic & flexible website (https://lnkd.in/eq8vGgP), as well as a blog (this post refers to / is on the blog), where I will share my thoughts and observations.
It has been a pleasure to work with him during the many late evenings of this journey, and we both look forward to finally meeting in person when COVID times end. If you are looking for an experienced leader to optimize or digitize your financial services business, reach out to Gary. I am sure you will be happy you did.
Finally, you can subscribe to the Navesink News Blog to receive email notifications of new posts so you never miss out.
We wish you an happy, healthy and prosperous 2021
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The many unsolved issues of the Christmas Brexit deal
“It ain’t over till it’s over”, said the baseball legend Yogi Berra. And Brexit is surely not over with this Christmas deal. Many issues remain unsolved.
The CFTC goes after foreign bribery actors
Corruption has a new enforcement agency. The CFTC effectively delivered on its intention to enforce the FCPA. Vitol, the Swiss firm, was just fined $95m for bribery.
The Brexit deal brings no special treat to the UK’s financial sector
While economists and journalists pour into the 1,200+ pages of the Brexit treaty and its long-term impact, the financial services are already seen as the big missing part. The Square Mile is getting worried.
Fifty years of tax cuts for rich didn’t trickle down, LSE says
That will not be to everybody’s taste…
A study from the London School of Economics of 18 OECD countries over the last 50 years confirms that reducing taxes only impacts those directly touched by the tax, and has no benefit to anyone else. Tax cuts increase inequality with no impact on economic growth and unemployment.
Britain will do a Brexit deal on Europe’s terms
The British prime minister knows that a “no deal” Brexit would be disastrous for the country.
In game theory, a symmetric game (where both players have equivalent hands and payoffs) has an outcome of zero – nobody wins. But when both players, unfortunately, know who has the upper hand…
A History of Daytrading: Regulators, Congress and Robinhood
More about Robinhood… Massachusetts’ Enforcement Division filed a complaint about
– its aggressive growth tactics,
– the firm’s outages and disruptions, which were well known and ignored while pushing growth,
– its gamification,
– and insufficient supervision for option trading.
Here is an excellent, albeit a bit lengthy, analysis of the history, regulatory and general situation of Robinhood & its Day Trading business by Bill Singer of Broke and Brokers (http://www.rrbdlaw.com/).
Robinhood’s $65m SEC penalty and the ‘gamification’ of trading
Robinhood has just been fined $65m for overcharging its customers, despite trades being free of charge – the company sells its order flow, and the net result is that traders are overcharged $35m/y.
The firm also mislead its clients in its advertising.
But in the back of these already serious issues, is the question of ”gamification’ of trading, where inexperienced individuals actively day-trade on margin. They end-up facing professional investors, who are much better informed and equipped than them. A previous note (https://lnkd.in/gCjKwtM) showed that most if not all end-up losing money.
This five-year-old article below still remains a good analysis of what ‘gamification’ entails. It is probably fine for school teaching and corporate training, but feeding a “high-octane gambling need” is probably not ideal for financial markets.
Robinhood’s documented bubbles, coupled with many new accounts and likely overpriced markets, could turn pretty ugly pretty fast.
CFTC Fines TFS-ICAP $7m for fake FX option market
Oh, so faking up an initial spread to start a market isn’t allowed? Let me put this one out, it’s not rare… CFTC fines TFS-ICAP and its managers $7m for fake FX option markets.
Interestingly enough, the action comes from a whistleblower (who will be entitled 10-30% of that recovery…)
The Sharpe Ratio Broke Investors’ Brains
Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.
The Sharpe ratio has changed investor behavior. We chase the metric rather than the underlying quality it is trying to assess, and there are plenty of situations where the Sharpe is a poor metric of quality.
And there are unfortunately major losses, which keep on demonstrating the point – LTCM, AIG, Malachite…
Fridges are the new rocket science
Fridges are the new rocket science… IBM’s target of a million-qubit requires the biggest and coolest fridge ever.
The article is also a good overview of where quantum computers are, and where they will be. Quantum computers will be exponentially better at some tasks, but not at all tasks. Excel will still run on your desktop; high-dimensional problems (investments! back-tests! optimizations!) would fit well in quantum computers. The next generation of software will separate tasks and send them to either/or, thanks to cloud-based quantum capacity.
Betterment and Wealthfront on the brink of major changes
If you are not in the RIA space, you may have missed a profound change in the area. Robo-advisors are taking a solid market share, and their AUMs are now in the multi-billions. The big boys (Fidelity, Vanguard…), were actually forced to create their own such services not to be left out of this new segment.
Robo-advisors are not really growing at the expense of the usual wealth managers (which still better grasp complex situations), but are concentrating on the under-served low AUM investors. Robos charge a fraction of the existing management fees, thanks to artificial intelligence. They only offer the human touch past a certain $ nominal, therefore bringing the number of advisors per client really low. In fact, Robos also help the usual RIAs with the practical aspects of asset management (cash handling, rebalancing…).
Two leaders, Betterment and Wealthfront, are preparing for the next step of their growth. This article gives an idea of how the senior changes should impact their future.
Portfolio managers shouldn’t keep the best trades for themselves
Nope, portfolio managers shouldn’t keep the best trades for themselves (at the expense of other investors).
BlueCrest moved its best traders into a management-owned fund, and used AI to replicate their trades in the main fund. Unfortunately, the replication was poor, and investors redeemed and sued when the intel of the new approach came out.
The SEC is now forcing BlueCrest to compensate investors $130m for the underperformance, with a $37m penalty on top.
Chicken nuggets and fries? Boris Johnson sets himself up for a disastrous dinner date
Chicken nuggets and fries? To avoid the topic of fishing rights, maybe?
This whole story looks more like Waterloo than anything else…
Jiuzhang, China’s new quantum computer, has leaped forward Google’s and IBM’s quantum computers.
Jiuzhang, China’s new quantum computer, has leaped forward Google’s and IBM’s quantum computers. It is also based on a different technology (photons, rather than superconductors), which is probably easier to increase the number of qubits.
Although quantum computers are only working on very particular problems now, the technology will eventually be groundbreaking.
Brexit: What were we thinking?
While the chances of avoiding a hard Brexit are dwindling under our eyes, this British-written article puts the cause of the divorce on the country’s long-seated culture and its establishment – Labour in particular.
The End of the Trump Administration: Investigations and Non Disclosure Agreements
NDAs enforceability is often a tricky issue, and tricky legal issues require qualified legal advice.
Independently of its initial political topic, Dennis Boyle’s article highlights key issues on this type of contract, and whether they should prevent you from speaking to authorities.
Most Robinhood day traders lose money
Most day traders on Robinhood lose money. Actually, maybe 0.5% of day-traders earned more than the initial salary of a bank teller.
A large body of academic studies going back 20 years consistently shows day traders and other very active traders have difficulty making money over anything more than short periods of time.
A terrible, horrible, no-good year for quants
Quant hedge funds have had a bad year. One of their core factor, value, a staple of investment for many years, has strongly underperformed.
Quants rely on backtests to see what has performed / is performing well. In a changing universe, models naturally have short lifetimes as a result. In this covid world, the past really doesn’t reflect the future anymore, and many models do not work at all. Some quants have self-doubt on the validity of their approach (see the previous post on Inigo Fraser Jenkins).
It’s probably way too early to call for the demise of quant investing, but COVID surely brings a regime shift.
France declares second national lockdown
No benefit in being alarmist, and there are far too many people talking about COVID than needed. But the markets remain ‘truth midwives”, and today’s market fall is explained by these points:
– The resurgence covid resurgence is much larger this Fall than it was in Spring.
– Europe (not just France), needs to re-instore solid prophylactic measures. There are now curfews in large French cities.
– While Europe is in a second wave, whose roots probably come from frustration and the abnormal strength of this virus, the US is still in its first wave. The recent US resurgence is only the virus reaching states, which it had not yet infected. There’s probably worse to come in the US.
UK mathematician wins richest prize in academia
Martin Hairer, an Austrian-British researcher at Imperial College London, is the winner of the 2021 Breakthrough prize for mathematics. A paper so good, it must have been ‘written by aliens’. A big step ahead in stochastic PDE.
Wall Street bids a not-so-fond farewell to exchange traded notes
A good piece on the history of ETNs, who are in period of lackluster growth / demotion / regulatory pressure, unlike ETFs.
ETNs’ complexity makes them interesting for professionals, but unfortunately extremely dangerous for most investors as well. No, XIV is not a company…
One Trader Started The Day With $77,000 In His Account; By The End He Owed $9 Million
If you lose money in trading, your broker can and will go after your assets, including your personal assets. In fast markets, this happens even more often. A glitch at Interactive Brokers may be the rare exception.
Why did the WTI futures have a negative price?
Why was the price of the oil futures negative? The explanation is simple – delivery.
Mind the Gap: Diversification and inequality
Simple and interesting reading. Imagine we all started in life with the same wealth and randomly generated profits by trading with each other. The first winners benefit from diversification, and tend to increase their wealth.
=> A fair economy naturally converges towards an unequal society.
In other words, even with equal skills and no inheritance, some of us will become the 1%. By pure luck.
That would have been a touchy Thanksgiving topic…
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