Finance

Fairly boutique this Ethics thing

Not exactly huge by the standards of the industry:

Ethic currently has $1.3 billion under management.

Boutique even. Which explains this:

On Tuesday, the couple announced they had invested in fintech asset manager Ethic, saying they “want to rethink the nature of investing to help solve the global issues we all face”.

Investing, well, yes, sweat equity for the publicity perhaps?

After all, it worked pretty well for Shatner with Priceline, right?

Difficult thing to complain about really

Bonuses:

The FCA boss Nikhil Rathi is now proposing to scrap the bonuses after two independent reviews found the regulator had acted too slowly to protect consumers. He said the payouts had “not been effective at driving individual or collective performance”.

Details of the bonus payouts obtained by the Observer reveal £125,529,590 has been paid out in bonuses at the watchdog since 2016, including bonuses worth up to £45,000 each for executive directors.

In the year to 31 March 2021, £19.8m in bonuses was paid out, with average payouts of about £5,300 for those receiving awards.

These are among the biggest bonus pots ever handed out in a government department or quango.

Gina Miller, the business activist and co-founder of the True and Fair Campaign, which is calling for a package of financial reforms to benefit consumers, said: “These payouts are an absolute insult to people who have lost their life savings or have had their lives decimated because we have a regulator which isn’t fit for purpose.

OK, quango, government, why in buggery should they have bonuses?

But also, the industry itself works on wages plus bonuses. And you would like to have at least a modicum of people at the quango who know the industry from the inside. So, to at least some extent, you’ve got to adopt the pay scales and pay styles of the industry you’re trying to recruit from.

Actually, there’s a good argument that given the incompetents they do have they should be paying better bonuses – and also adopting that other employment feature, firing people on the spot.

No Guardian, really, just no

Sigh:

China’s factory activity in shock slowdown as energy crisis hits home
Output, orders and employment all fell in September, according to official data, as Beijing turns to Russia to ease its electricity shortages

It’s not official data.

Analysts had expected the manufacturing purchasing manager’s index (PMI) to remain steady at 50.1 in September, but the official result showed the index at 49.6. The 50-point mark separates growth from contraction.

It’s a private sector survey which is used as a proxy for a measure of economic activity. It’s a pretty good proxy, although no one sensible would worry too much about a 0.5 move in it – it’s not all that, that, accurate. But it is private sector information, not official.

Deals in email that can be rejected

It is a smart AI-based trading robot that will make 93% of successful trades.

The set of users is limited, there are 39 places left.

All other users will pay 10% of each transaction for using our AI trading robot.

Register now and use it for free.

19 out of 75 of our beta testers became dollar millionaires in 2-3 months with an investment of $ 1000, the rest, using our trading robot, receive passive income of $ 47,000 per month.

You don’t need to know anything here, work experience is not needed, your personal manager will help you with everything.

Hurry up to register and start earning passive income.

If you had an AI with that level of success, requiring that small an investment, then why would you hire it out?

On average, you could set up 47 new accounts of your own – each with a 19 in 75 chance of making a million – each month from the revenue from each account that you’re willing to set up for a 10% cut of said revenues.

Why would you, the owner of the AI, prefer the 10%?

Ben Marlow doesn’t understand flotations

Bit of a difficulty there when you’re a market commentator for a major newspaper:

A far better alternative exists anyway, at least from Arm’s perspective and the wider national interest: a bumper share listing that returns it to the stock market after an underwhelming five years in Softbank’s hands.

The City would back it in a heartbeat. Fund managers are desperate to own technology stocks, despite many of the same investors facilitating Arm’s sale in 2016. By selling shares to overseas investors, it would help to counter suggestions that Brexit Britain has suddenly adopted a more protectionist stance. A retail offering would ensure there is wider public support too.

The billions raised could be ploughed back into its Cambridge base, matching a pledge from Nvidia, and a joint venture agreed with the Americans to make up for the disappointment of being jilted so late in the day.

What billions?

Softbank is selling it. The money from the sale – whether selling the company to Nvidia, or floating it on a stock market – goes to Softbank.

Plus, of course, Softbank wants its money. Meaning that they’d have to try and float the whole thing, not retain a shareholding at all. Which would be rather tough to do.

In short, the man’s dribbling.

And it would give the Government the home-grown tech champion to rival Facebook or Apple that it craves. Arm is already an established global star but its sale to Softbank was an act of national stupidity by a government desperate to prove its international investment credentials in the wake of the referendum.

This is a golden opportunity to reverse that mistake and ensure Arm’s future is preserved, rather than the company becoming an expendable offshoot of a foreign rival.

It wasn’t the government’s to sell in the first place and isn’t the government’s to dispose of now either. It’s also a home grown champion whoever owns it. It’s all getting rather Mussolini this stuff, isn’t it?

Mr. Shaxson’s latest brain phart

To their critics, private equity firms are blood-suckers that load healthy companies with debt then asset-strip them, leaving lifeless husks. The private equity titans counter with the opposite tale: they buy underperforming firms, install whizzy IT systems and inject far-sighted management, borrow money to juice up performance, and turn them into roaring engines of capitalism, making everyone rich. As ever, the reality is a mix of the two.

The core of private equity’s problem – for society, but not for its investors – is that many of the tricks in private equity’s toolbox just redistribute the pie upwards, generating immense profits but deepening inequality and sapping growth.

He wants to stop private equity. Because summat. So, who will put the fear of God into the inefficient capitalists, insist that they must become more efficient?

No one apparently, meaning that the future will be poorer than otherwise as there is no ratchet increasing productivity over time. But Nick Buddy will have had a pat on the back from his mates so that’s alright then.

They’re just gagging for it, aren’t they?

A report from Bloomberg (subscription required) in July stated that “The Trump Organization has more than $590 million of debt coming due within the next four years with more than half personally guaranteed by Trump. This includes $100 million on Trump Tower in Manhattan maturing next year and $125 million due in 2023 for the Trump Doral golf resort near Miami,” and that the former president is unlikely to find a financial partner willing to help him refinance his debt load.

What matters is the assets he can put against such refinancings. I seriously doubt it’s going to be a problem.

Progressive argumentation

Part of this repayment would go toward satisfying a $465 million debt obligation to JPMorgan Chase, one of the nation’s biggest and most profitable banks. In its most recent earnings report, JPMorgan posted an $11.9 billion profit, up 155 percent from a year earlier. The bank also made billions last year on overdraft fees, largely from the same vulnerable communities that would benefit from ARPA relief.

OK.

Banks make money by lending money out and charging for doing so.

The poster child of this effort is Chicago, where Mayor Lori Lightfoot’s office proposed in April to use more than half of its funding allocation of $1.89 billion to pay down city debt. This would specifically pay off certain so-called “scoop and toss” borrowing deals that use new issuance of long-term debt to pay off debt coming due.

Paying off debt would reduce banking profits by removing their ability to charge for lending money they’re not lending.

When Joe Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) in March, he framed it as an effort to “giv[e] people in this nation—working people and middle-class folks, the people who built the country—a fighting chance.” That presumably does not include enriching Wall Street banks, though several cities have proposed doing just that.

Among other things, ARPA provided $350 billion in state and local fiscal recovery funds, enabling communities to reverse some of the economic hardships of the pandemic as well as rebuild for the future. But according to Bloomberg, “at least two dozen local governments and lobbying groups” have urged the executive branch to give them the authority to use those recovery funds to pay down debt built up in previous years. This would have the effect of directing ARPA dollars to financiers, in most cases big banks, rather than to meeting the immediate needs of community residents.

Paying off debt enriches bankers.

Eh?

BP’s doing the wrong thing

There’s no particular – even non-particular – reason why a company should last forever. It’s just a group of people within a legal wrapper attempting to specialise at a task.

If that task doesn’t need doing then don’t have the company:

BP boss Bernard Looney has one of the hardest jobs on the planet, transforming a sleepy oil giant into a serious force in renewable energy, or what he prefers to call “an integrated energy company”.

The sceptics think it is an impossible task but the Irishman makes it all sound so plausible, insisting that it “doesn’t need to be a choice” between prioritising green investment or returning cash to shareholders.

Yet the latest quarterly financial results from BP and Shell suggest it is precisely that. Despite forecast-beating numbers from both, payouts remain roughly half pre-pandemic levels despite a swift rebound in oil prices as the industry comes under severe pressure to spend greater sums on green projects.

Looney is walking a tightrope between keeping investors sweet with generous payouts and placating environmental campaigners who demand that BP retreats from oil-drilling and ploughs billions into wind farms, carbon capture, hydrogen and electric vehicle charging, and other low-carbon initiatives.

If BP is better at any of those tasks than a blank sheet company then by all means invest in those things. I think it unlikely that they are but then such differences of views are what make markets. However, that is the question that needs to be asked. Are they going to be better?

For there’s nothing wrong with saying, well, our task here is done, we’re going to wind down. We’ll sweat the last drops of profit from oil, return it all to share holders and fold. In fact, if that is what maximises returns to shareholders that is what they should be doing. And I strongly suspect that it is.

Not that I’m going to bet money on it – and don’t have enough to try it to see – but it wouldn’t surprise me in the slightest that putting the big oil companies into run off would be in shareholder interests. Buy one, stop investing in new fields, just run the ones already owned, pay down debt and shovel out the dividends. Plus, obviously, not spending one single red cent on anything green or renewable.

Because once there’s no need for oil – if that is true of course – there’s no need for oil companies. Die instead.

Yields work two ways of course

City centre landlords are cashing in as surging tenant demand means yields have jumped this year.

So far in 2021, the average investor purchasing a buy-to-let in a city achieved a gross yield of 5.3pc, according to Hamptons estate agents. This was boost of 0.6 percentage points from 2020, when returns slumped in the wake of the pandemic.

This being – or at least could be – neatly explained by capital values having declined by the necessary amount. Yield is, after all, rent as a percentage of that capital value……falling prices not being the usual background to people “cashing in”.

Clearly and obviously a bounder

That or a peasant.

Look, the point of our having the Cabinet picked from Eton’s finest is that they’ll know these things, instinctively.

Urgent reforms of the financial system are needed in the wake of the Greensill Capital scandal to stamp out abuses that risk allowing inappropriate people to take control of banks and the outsourcing of regulation to third parties, MPs have warned.

Man doesn’t unbutton his jacket when he sits down. Why wasn’t he horsewhipped?

Secured creditors get paid, yes, and?

Lady Tina Green, wife of the former retail tycoon Sir Philip, has been handed £50m by Topshop’s administrators, even as pensioners and smaller suppliers face a further wait to recover what they are owed by the collapsed chain.

The Green family’s Aldsworth Equity, incorporated in the British Virgin Islands and controlled by Lady Tina Green, received the payout in May.

The money was lent to Topshop as part of an emergency restructuring in 2019 and secured against a former warehouse in Daventry, in Northamptonshire.

The important word in those three paras being “secured”.

Entirely quite so

Taxpayer losses linked to the collapse of Greensill Capital could have been avoided with proper due diligence, the spending watchdog has concluded.

A 56-page report into how the finance firm advised by David Cameron was given access to the Government’s Covid support schemes found that the state-backed bank that approved Greensill as an accredited lender could have been “more sceptical” when dealing with the firm.

And if we hadn’t lent them the money they couldn’t have lost it.

We’re back at Hayek. It’s not possible to know everything about an economy. Therefore all decisions are taken with incomplete information.

Fair enough, Greensill was obviously dodgy etc – parts of the business were entirely fine but not all of it – but the statement “more diligence would have avoided loan losses” is always true of every bank, every loan and every loss.

How very clever

And also rather risky but still:

Billionaire Peter Thiel, one of the founders of PayPal, has used a retirement account designed to help ordinary Americans save for their golden years to amass a $5bn tax-free nest egg, according to records obtained by ProPublica.

Thiel, a vocal opponent of higher taxes, is one of a number of ultra-rich Americans to use a Roth individual retirement account (IRA) to amass a tax-free fortune.

Roth IRAs were established in 1997 to encourage middle-class Americans to save, tax-free, for retirement. In 2018 the average Roth IRA held $39,108. The proceeds of a Roth IRA are tax-free as long as they are not withdrawn before the account holder reaches 59.5 years old.

Records obtained by ProPublica show that Thiel, 53, placed 1.7m shares of then-private PayPal into a Roth IRA in 1999. At the time annual contributions to the plans were capped at $2,000. The shares were valued at just $0.001 per share.

Within a year, the value of Thiel’s Roth increased from $1,664 to $3.8m. Thiel then used his Roth to make highly lucrative investments in Facebook and Palantir Technologies, according to tax records and other documents obtained by ProPublica. By 2019, Thiel’s Roth held $5bn “spread across 96 subaccounts”.

The whole investment gig has been run through his IRA. Entirely, wholly, legal and all that.

One implication of all this is that he’s long term investing. Putting it to use in the economy for decades, none of this short term profit making for him. But of course they’ll be screaming about that too.

One of these trivial pendantries

The founder of Wise is set to become a paper billionaire next month as the fintech company tees up a £5bn stock market listing.

Kristo Käärmann, who set up the London-based money transfer company formerly known as Transferwise in 2011, is set to own stock worth a fortune when the company goes public next month.

Well, no. He currently owns stock worth a fortune. Yes, the listing and the liquidity might increase that amount. But if something is worth £5 billion next month then it’s a very reasonable bet that it’s worth some billions this month already.

That is, the listing might do all sorts of things to his fortune but it doesn’t actually create it.

I keep having to point this out

Another float flops as Made.com shares slump
Shares in online furniture retailer close just under 200p float price, leaving it worth than a fifth less than its expected £1bn valuation

If you sell something for more than it’s worth just after you’ve sold it then you have sold succecssfully. If whatever it is you’re selling soars in value immediately after you’ve sold it then you’ve been unsuccessful, you’ve left money on the table.

Sure, there’s a difference between short and long term and all that. Even so, the price falling immediately after you’ve sold means you got a good price for it, you were successful.

On the subject of corporate buying of housing

So, why have the corporates gone to buy houses?

QE.

What’s the point of QE? To lower the long term risk free interest rate. Therefore people must, in pursuit of income and yield, move out along the risk curve.

So, why do corporate buyers invest in housing? They’ve moved out along the risk curve in search of yield.

QE works that is….and if you want to stop it then stop QE and allow the risk free interest rate to rise.

Tracing bitcoin

Deputy Attorney General Lisa Monaco said investigators had seized 63.7 Bitcoins paid by Colonial after last month’s hack of its systems that led to massive shortages at US East Coast gas stations.

The fact that investigators “could trace the untraceable and seize it might be undermining the libertarian, free-of-government-control case,” Jeffrey Halley, a senior market analyst at Oanda, told Bloomberg. The implications of that may have provoked the selling, he said.

Good grief, the entire design of the system is that every transaction, every single coin, can be traced from the Year Dot to today. You may not know who owns it but given time and effort every single one can be tracked.

Idiot

The London Stock Exchange has been criticised for helping the Belarusian government to raise $1.25bn (£880m) of debt weeks before a “rigged” election in Europe’s last dictatorship.

Well, you know, maybe. Although asking a stock exchange to determine political legitimacy has certain dangers of its own. Imagine someone the left likes not being able to raise money?

There have been concerns for years that the City is too eager to welcome money from regimes with a poor record on human rights and corruption.

That’s distinctly silly. Because they’re taking money out, not putting it in.