Navesink Blog

Crypto-pumps: the widespread pump-and-dumps schemes in cryptocurrencies

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.

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Volmageddon, miscalculation, new regulation?

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.

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Robinhood: side effects include headaches, suicide, addiction, anxiety, withdrawals. And IPO.

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.

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Non-Fungible Tokens in Non-Fungible Markets

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.

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T+1 ?

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.

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Roaring Kitty is a Wall Street lion

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.

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Are the Robinhood traders going after the VIX?

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.

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The high price of free trade

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.

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Paul Mora receives the first Interpol warrant in the Cum/Ex tax trading strategy

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.

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Another Ponzi – $1.7 billion and 17,000 investors

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.

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The revenge of the retail trader

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.

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SEC’s former whistleblowing chief sues the SEC for changes to the whistleblowing program

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.

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My grateful thanks to Gary Cohen, financier and social media extraordinaire

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.

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A History of Daytrading: Regulators, Congress and Robinhood

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/).

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Robinhood’s $65m SEC penalty and the ‘gamification’ of trading

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.

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The Sharpe Ratio Broke Investors’ Brains

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…

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Fridges are the new rocket science

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.

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Betterment and Wealthfront on the brink of major changes

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.

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Portfolio managers shouldn’t keep the best trades for themselves

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.

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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.

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.

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Most Robinhood day traders lose money

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.

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A terrible, horrible, no-good year for quants

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.

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France declares second national lockdown

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.

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Mind the Gap: Diversification and inequality

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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Previous Posts

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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.

Stefan He Qin

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.

Richard-branson-drinking-Champagne

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.

UBS-Logo-upside-down

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.

usinesspeople grabbing money

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.

tunnel-in-space

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-going-down

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.

Pop-the-balloon

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.

biggest-ponzi-schemes-in-modern-history-Title

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.

Jules-Verne-Rocket-To-The-Moon

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.

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