“The kids these days say, ‘No risk, no ‘rari,’” said Patrick Wieland, a content creator and day trader who has in recent weeks poured thousands of dollars into ProShares UltraPro QQQ. (“Rari” is slang for Ferrari.) Shares of the fund, a triple-leveraged ETF that aims to generate three times the daily performance of the Nasdaq-100 index, notched double-digit gains during a historic rally on April 9, but are still down more than 20% this month. […]

Kiel Elliott, a Los Angeles-based executive at an entertainment studio, spent roughly $40,000 scooping up GameStop call options in early April. Calls, which offer the right to buy a stock at a set price, typically represent a bet that a stock will gain.

Elliott calls himself a “degenerate gambler” and says the market’s twists and turns have made for the perfect trading environment. GameStop shares have gained 25% this month.

[…] “The whole economy is a meme stock now, so enjoy the ride” feels like a grim but useful explanation.

{ Matt Levine | Continue reading }

{ How Government Spending Is Up Even as Musk Touts Savings | Wall Street Journal }

Netflix in 2012 […] had a simple but massive catalog of movies and shows, solid recommendations, and basic library management. Compared to my limited local media library it was great. You could actively tune your tastes and rate things with a 5-star system.

Netflix today is very different. It’s not a library—it’s an experience. Instead of reliably showing me what I “have” and recommending what I might like, it shuffles content on each interaction, sometimes changing the cover images of shows in real time, like some black-market charlatan. […]

Spotify in 2015 […] was like my iTunes library, but with millions more tracks. […] Spotify today is… basically Netflix. An inconsistent stream of ever-changing content, weak library tools, and an endless barrage of podcasts.

Overall, consistency, user control, and actual UX innovation are in decline. Everything is converging on TikTok—which is basically TV with infinite channels. You don’t control anything except the channel switch. It’s like Carcinisation, a form of convergent evolution where unrelated crustaceans all evolve into something vaguely crab-shaped.

{ Rakhim’s blog | Continue reading }

Since World War II, most countries in the world, including China, have been working to reduce tariffs. Why are they trying to reduce tariffs? Because we all learned in Economics 01 that trade is good, that if somebody else can make something cheaper and better than you can, you let them make that, and you make something else that you can do better or cheaper. And on that basis, we’ve had this period of essentially unparalleled prosperity since World War II, and trade has played a meaningful role in that.

Another example, more recently, is the fact that we had so little inflation from the great financial crisis until Covid because the price of goods, which are the things that can more easily move across an international barrier, were coming down in price or at least not going up in price. […]

I think he may have gone into some time warp or something and ended up in a 19th-century class on economics, because back then they taught you what we call mercantilism, that countries’ goal was to accumulate gold. They all wanted more gold, and so therefore, you wanted to have trade surpluses, and therefore tariffs were high, and trade barriers were high. […]

First of all, even if other countries stop sending us their clothes, their furniture, their iPhones, whatever, we can’t make that stuff here. We do not, any longer, have the physical infrastructure to make it. You’d have to go out and build lots and lots of factories in order to replace that. Businesses are not going to do that, because they don’t believe in their heart that these tariffs are permanent. They believe that everyone will realize how bad they are and maybe after the next presidential election or whenever, they’ll get removed. And so it can’t work. It won’t work. But simply what this is going to mean is that you’re going to pay 20 percent more for your iPhone or something like that the next time you go to buy one.

{ Steven Rattner | NY Times | Continue reading }

When Musk’s envoys show up at agencies that he privately does business with, including NASA, or that regulate his companies, troubling questions are raised. This happened when it was revealed that the Federal Aviation Administration was considering shifting a contract for its communications systems from Verizon to Musk’s Starlink. Questions have also arisen, and not been put to rest, about what Musk’s employees at DOGE might do with their access to a confidential database of drug approvals, given that Neuralink, Musk’s brain implant company, has business before the Food and Drug Administration.

{ Washington Post | Continue reading }

related { Musk Is Positioned to Profit Off Billions in New Government Contracts | NY Times }

more { X sues Lego, Nestlé, Colgate-Palmolive, Pinterest, Shell International… accusing them of advertising boycott }

and { Elon Musk defends Ketamine use under doctor’s prescription for his mental health: “It helps me, and that helps Tesla” | Ketamine is called a dissociative drug because during a high, which lasts about an hour, people might feel detached from their body, their emotions, or the passage of time. Excessive use of the drug can make anyone feel like they rule the world. }

When Alex Goldstein was just 7 years old, he says, he was drawn to extreme weather. Within 10 years, he convinced his father to take him storm chasing and hasn’t stopped since.

Now, at 35, he leads a small group of data scientists and meteorologists who help teams of traders at one of the world’s largest hedge funds position themselves in commodities markets.

Millennium Management’s Goldstein and other specialists like him who can help model weather patterns in an increasingly volatile climate have become one of the most sought-after groups for hedge funds and trading firms. […]

Hedge funds on average hired 23% more weather experts, including data scientists and meteorologists, in 2024 compared to a year earlier. […] The average pay package has also increased by 18%, with the top talent getting as much as between $750,000 and $1 million.

That compares to a median salary in 2023 of about $93,000 for atmospheric scientists, including meteorologists, according to the US Bureau of Labor Statistics.

{ Bloomberg | Continue reading }

unrelated { IRS staff cuts mean less scrutiny for ultra-wealthy }

I think a lot about what I sometimes call “abstract commodity space.” Sometimes you want to buy nickel or aluminum or coffee or cocoa to make batteries or beer cans or cappuccino or chocolate bars, so you go to some supplier and negotiate a contract for the delivery of a useful amount of a particular grade of the commodity to your factory. Sometimes, though, you want to bet on the price of nickel or aluminum or coffee or cocoa, to hedge some risk to your business or just as a speculative bet. So you buy commodity futures, financial assets that reflect the price of a commodity but don’t require you to store it or worry about it spoiling.

The way these futures often work is that there are big warehouses full of the commodity, and people write futures contracts that essentially transfer the entitlements to the commodities in the warehouse, without ever having to take them out. Your futures represent a claim on some nickel or coffee in a warehouse in abstract commodity space,[1] and you don’t have to think much about the physical properties of the actual thing. The warehouse system has put a layer of abstraction on the messy commodity business, and you can treat the commodity as just a number on your computer screen.

We mostly talk about this when it breaks down, though. Sometimes the physical world tears through the layer of abstraction. The coffee or cocoa beans are stale, or someone discovers that the nickel in the warehouse is actually a bag of rocks.

Or: Abstract commodity space is fairly global, and you can trade abstract commodities from a computer screen anywhere in the world. But the physical world is not so seamlessly globalized. Now, gold in a warehouse in New York is worth more than gold in a warehouse in London. Here’s a Wall Street Journal article on “Why Dealers Are Flying Gold Bars by Plane From London to New York”:

Gold is, for the moment, worth substantially more in Manhattan than in the U.K. capital, sparking the biggest trans-Atlantic movement of physical bars in years. Traders at major banks are racing to yank gold from vaults deep below London’s medieval streets and from Swiss gold refineries and ferry them across the ocean. …

Banks run big offsetting positions, owning gold bars in London, lending them out to earn a return and hedging the risk that prices fall by selling futures in New York. JPMorgan and HSBC, which clear gold transactions and store bullion for other banks in London, are the biggest players in this trans-Atlantic market.

Banks run big offsetting positions, owning gold bars in London, lending them out to earn a return and hedging the risk that prices fall by selling futures in New York. JPMorgan and HSBC, which clear gold transactions and store bullion for other banks in London, are the biggest players in this trans-Atlantic market.

The trade appears almost risk-free as long as prices on both sides of the Atlantic are close to each other. But when prices on the Comex surged above those in London late last year, baking in possible tariffs, contracts that the banks had sold in New York were suddenly underwater. …

Banks could close the trade by buying futures in New York, but such a move would mean crystallizing those losses. Another alternative: flying the physical gold they owned in London to New York and delivering it to the futures contracts’ owners instead. […]

Comex contracts require a different size of bar, so traders need to send gold to Swiss refiners to recast it before flying on to the U.S. Sometimes, they cut out the first European leg by handing the refiner gold in London in exchange for the right size of bar, or flying bullion in from Australia instead.

{ Matt Levine | Continue reading }

DeepSeek’s origins are in finance, not technology for technology’s sake. Its parent company, a Chinese hedge fund called High-Flyer, began not as a laboratory devoted to safeguarding humanity from A.I. like Open AI, but as a business using A.I. to make bets in the Chinese stock market.

{ NY Times | Continue reading }

The nice thing about building an artificial intelligence model out of a quantitative hedge fund is that there are interesting ways to monetize it. A standalone AI company will probably think of ideas like “sell subscriptions to an AI chatbot” or “sell access to an application programming interface,” but with a hedge fund you can be more creative. […]

There is a much funnier approach. […]

• Build a good AI model that can compete with the leading large language models built by tech giants, but cheaply, with fewer and less sophisticated chips and less electricity.

• Sell short the stocks of the tech giants with expensive AI models, and the big chipmakers, and electric utilities and everyone else who is exposed to the “AI is a gusher of capital spending” trade.

• Then announce your cheap good open-source model.

• Wipe out almost $1 trillion of equity market value, and take some of that for yourself.

I have no reason to think that quant fund manager and DeepSeek founder Liang Wenfeng actually did that, or even thought about it, but, man, wouldn’t it be cool if he did?

{ Matt Levine/Bloomberg | Continue reading }

oil on canvas triptych painting { Francis Bacon, Triptych Inspired by the Oresteia of Aeschylus, 1981 }

related { interview with Liang Wenfeng, founder and CEO of Deepseek }

Financial losses for today’s start-ups are much more common than they were decades ago, and the losses are much bigger. VCs are making back less from their initial investments than at any point since the global financial crisis of 2007–9. […]

About 85 percent of America’s unicorn start-ups (those valued at more than $1 billion before doing IPOs) that have gone public were unprofitable in 2023, despite most having been founded more than fifteen years earlier. […]

As of early 2024, twenty-three American unicorns had more than $3 billion in cumulative losses, the amount Amazon had the year it became profitable. Five of them (Uber, WeWork, Rivian, Teledoc Health, and Lyft) had more than $10 billion, with Uber well over $30 billion. Other members of this club offer crypto, AI, consumer products, business software, biotech, electric vehicles, and healthcare. Despite these compa­nies having significantly higher losses than Amazon, Amazon’s eventual success continues to be used as an excuse, as if all start-ups can do what it has done. […]

Venture capital funds earn fixed fees from investors that enable them to profit even if start-ups do not. These fixed fees encourage VCs to hire people who are good at raising money and spinning narratives, but not at identifying good opportunities. VCs also convinced not only investors but also cities, states, and countries that start-ups are key to economic growth.

{ American Affairs Journal | Continue reading }

When you deposit money at a bank, you expect the bank to give it back to you. There are two things you might worry about, two sets of risks that might prevent the bank from giving you back your money. One is that the bank might lose the money. Banks do not generally just keep your money in the vault. They use it to make loans, so there is risk: The loans might default, or depositors might all demand their money back at once when the bank does not have a lot of ready cash. […]

The other risk is that the bank might lose track of the money. You might go to the bank and deposit $100, and the bank might write down “$100” next to your name in its notebook, and then it might spill coffee on the notebook and be unable to read the entry and forget that it owes you the $100. And then you might come back to the bank in a week and ask for your $100 back and the bank might say “who are you? what $100?” […]

If a bank loses all your money, the FDIC [Federal Deposit Insurance Corporation] can give you your money back, because the FDIC is the government and can print money. If the bank loses its list of who has the money, what can the FDIC do? […] The definitive list of who the bank owes money is kept by the bank. Unless it isn’t.

I have never really understood the Synapse situation, but in my defense Synapse doesn’t understand it either. […]

Synapse functioned as a middleware provider between banks and fintechs. Synapse was a pioneer in what came to be known as “banking-as-a-service” (BaaS). In this role, Synapse opened accounts on behalf of approximately 100 fintech companies (and millions of end users) at four different partner banks.

On April 22, 2024, Synapse filed for Chapter 11 bankruptcy. On May 11, the partner banks lost access to the records maintained by Synapse and were unable to determine which end-users rightfully should be able to withdraw their funds.

[…]

You could imagine a world in which technology companies were better and nimbler and more accurate at keeping lists on computers than banks were. But in our world, banks have hundreds of years of history and regulation that have taught them that keeping an accurate list of who has the money is really, really, really, really, really important, and they tend to do it.

{ Matt Levine / Bloomberg| Continue reading }

In January 2023, short seller Hindenburg Research put out a report claiming that executives at one of India’s largest conglomerates were manipulating the company’s stock price.

The Adani Group and its multibillionaire founder Gautam Adani strenuously deny the accusations, but the report instantly wiped off as much as $140bn from the conglomerate’s market value and sent ripples through the country’s establishment. It also catapulted the New York-based Hindenburg and its founder Nathan Anderson into Wall Street lore.

Few saw it coming. But one that did was a hedge fund in New York almost 13,000 kilometres away from the Indian conglomerate’s headquarters.

Kingdon Capital Management had received a draft of the short seller’s report in November 2022 as part of an agreement it had signed with Hindenburg a year earlier, India’s markets regulator revealed in June.

The hedge fund, which was founded by Mark Kingdon in the 1980s, had set up a special fund in Mauritius and had started building a short position on Adani two weeks before Hindenburg released its report.

Kingdon, which has less than $1bn in assets under management, turned a $22mn profit from the trade. As part of the agreement, Hindenburg received a 25 per cent cut of the spoils. […]

activist short sellers tend to explicitly look for evidence suggesting malfeasance. […] Hindenburg, for example, says that it seeks out situations where there might be some combination of accounting irregularities, undisclosed related-party transactions, and illegal or unethical business or financial reporting practices.

{ Financial Times | Continue reading }

oil on canvas { Francis Bacon, Man in blue IV, 1954 }

Shareholder democracy is weird because you can just buy votes. In fact, that’s kind of the point: Each share of a public company usually has one vote, so if you want to take control of the company, all you have to do is buy enough shares to win a shareholder vote. (Conservatively 50% plus one, but probably less, if you can get other shareholders to join you and/or they don’t vote.) The voting power is generally proportional to the economic ownership of the company; the more you own, the more say you have.

But it is reasonably easy to hedge stock. If you own a lot of stock of a company, and you want to (1) continue owning that stock but (2) not be fully economically exposed to the risk of the stock price, you can probably find a way to do that. Most simply, you could (1) buy 10 million shares of stock and (2) also borrow 10 million other shares of stock and sell them short. You’re long 10 million shares and short 10 million shares, so you have net zero exposure: If the stock goes up (or down), you will make (lose) money on the 10 million shares you own, and lose (make) an exactly offsetting amount of money on the 10 million shares that you are short. But you get to vote the 10 million shares that you’re long, while you don’t get negative votes for shares you are short. So you have zero economic ownership but 10 million votes. […]

The fun question, which people email me about from time to time, is: What if you go long 10 million shares and short 20 million shares? Then (1) you get to vote 10 million shares and, as a big economic owner, you have a say in the running of the company, but (2) you actually profit if the company does badly, so your voting incentives will be bad.

{ Matt Levine / Bloomberg | Continue reading }

Christopher DeVocht, a carpenter from Vancouver Island, Canada, says he started out like a lot of day traders. After work, he’d read about trading on forums. His favorite things to trade were options on Tesla Inc. stock. […]

At the end of 2019, his account, with the brokerage division of Royal Bank of Canada, was worth C$88,000. Within two years, he’d turned that into C$415 million ($306 million), he says.

Some people would have cashed out. DeVocht didn’t. And when Tesla stock fell in 2022, he lost it all. […]

DeVocht now claims that the advice he received, geared mainly toward minimizing taxes, was negligent […] [Royal Bank of Canada] advised him to incorporate a company, roll all of his securities into it and conduct trades within the company “with a strategy of accumulating as many Tesla shares as possible and holding them for as long as possible,” DeVocht claims in the lawsuit. The idea was to convince Canadian tax authorities to view it as an investment holding company, not an active trading business, because he’d pay lower taxes that way.

{ Bloomberg | Continue reading }

This is just a cool insider trading case. There’s a guy, Robert Westbrook. He allegedly hacked into the email accounts of several executives at different US public companies. The SEC complaint lays out how he allegedly did that:

He would go to the executive’s Outlook email login page and click to reset the password. “Four of the five Hacked Companies used the same password reset portal software,” says the SEC, and he was apparently familiar with its workings.

He subscribed to “an online directory service provider and an online genealogy company,” which gave him “personal and family

information that could be used to guess the answers to the security questions that employees at the Hacked Companies may have used to reset their passwords.” You can do a lot of damage if you know a public-company executive’s mother’s maiden name and first pet’s name.

He’d reset their passwords and get access to their emails.

Then he’d read them and look for secret earnings information. […]

But even if you get earnings releases in advance, there’s no guarantee that you’ll make money. My Bloomberg Opinion colleague John Authers wrote last week about an Elm Partners study finding that most people can’t trade profitably even knowing tomorrow’s news. […]

Ten trades were winners, four were losers, the winners were bigger than the losers and his net profit was about $3.4 million. […]

This includes buying half a million dollars’ worth of one company’s[2] stock and call options before its March 2019 earnings report, and making a $236,492 profit when the earnings were good, and then buying $786,364 worth of that company’s put options before its March 2020 earnings report, and making a $1.04 million profit when those earnings were mixed.

{ Matt Levine / Bloomberg | Continue reading }

Paraquat is among the most toxic agricultural chemicals ever produced. It’s banned in the European Union, where the consequences of its use are still being felt, but in parts of the world it’s still being sold. This is made possible, in part, by an influence machine that works to suppress opposition to an $78 billion global industry.

A year-long investigation managed to penetrate a PR operation that casts those who raise the alarm, from pesticide critics to environmental scientists or sustainability campaigners, as an anti-science “protest industry,” and used US government money to do so.

The US-based PR firm, v-Fluence, built profiles on hundreds of scientists, campaigners and writers, whilst coordinating with government officials, to counter global resistance to pesticides. These profiles are published on a private social network, which grants privileged entry to 1,000 people. The network’s membership roster is a who’s-who of the agrochemical industry and its friends, featuring executives from some of the world’s largest pesticide companies alongside government officials from multiple countries.

These members can access profiles on more than 3,000 organisations and 500 people who have been critical of pesticides or Genetically Modified Organisms (GMOs). They come from all over the world and include scientists, UN human right experts, environmentalists, and journalists. Many of the profiles divulge personal details about the subjects, such as their home addresses and telephone numbers, and spotlight criticisms that disparage their work. Lawyers have told us this goes against data privacy laws in several countries. […]

Our investigation reveals that the US government funded v-Fluence as part of its program to promote GMOs in Africa and Asia.

{ Lighthouse Reports | Continue reading }

unrelated { Electric cars causing fires after Hurricane Helene flooding }

The basic rule is that the chief executive officer of a company works for the board of directors, and the directors work for the shareholders. Sometimes, though, the CEO is also the controlling shareholder, and this becomes circular: She works for the directors, who work for her. If they disagree, things get weird. If they’re unhappy with her, they can fire her, but then she can fire them.

This doesn’t come up all that often in basic job-performance situations […] It does happen, though: We talked last year about World Wrestling Entertainment Inc., whose board of directors pushed out founder-CEO Vince McMahon after sexual misconduct allegations, and then, as controlling shareholder, he pushed them out.

It comes up more often in mergers and acquisitions, and particularly in going-private transactions. […]

The directors work for all the shareholders, and they can’t just do what the controlling shareholder wants if it’s bad for the other shareholders. But the controlling shareholder gets to pick the board, and if they are too independent she can pick a new board. They can get fired for doing their job too well.

Anyway:

All seven independent directors of DNA-testing company 23andMe resigned Tuesday, following a protracted negotiation with founder and Chief Executive Anne Wojcicki over her plan to take the company private.

It is the latest challenge for 23andMe, which has struggled to find a profitable business model. The stock price rose a penny on Tuesday to $0.35 per share. At that price, 23andMe’s valuation is just $7 million more than the cash on its balance sheet. That represents a 99.9% decline from its $6 billion peak valuation just after going public in 2021. […]

Wojcicki controls 49% of 23andMe votes, giving her a level of control that blocked board members from shopping the company to other potential bidders. She is the only remaining board member after the resignations.

{ Matt Levine/Bloomberg | Continue reading }

The move is almost certainly the final nail in the coffin for the embattled company known for its mail-order DNA-testing kit. Since going public via merger with a special purpose acquisition company (SPAC) in 2021, 23andMe has never turned a profit. […]

The board includes Sequoia Capital’s Roelof Botha as well as Neal Mohan, who took the helm as CEO of YouTube last year after Susan Wojcicki, Anne’s late sister, stepped down.

{ Fortune | Continue reading }

A diamond – from the Greek ἀδάμας (adámas), meaning unconquerable – is a three-dimensional cubic or hexagonal lattice of carbon atoms. As its bonds are strong and its atoms packed closely together, diamond is the hardest natural material and the least compressible. Diamonds have high thermal conductivity and high electrical resistivity, but can be combined with small amounts of nitrogen, phosphorus, and boron and made into semiconductors. […]

In nature, it takes billions of years to form a diamond. Most of the diamonds nature produces are too impure for jewelry or high-tech industry, and extracting them is costly and dirty. […]

Diamonds grown in the lab are now cheaper than mined diamonds and have superior physical, optical, chemical, and electrical properties. Consequently, they dominate the industrial market. In the past decade, diamond manufacturing technology progressed so much that it is now possible to mass-produce jewelry-quality diamonds in the lab. These lab diamonds are cheaper and more beautiful than mined diamonds. A perfectly cut, flawless lab diamond costs a fraction of the price of a mined diamond of lesser quality.

{ Works in Progress | Continue reading }

{ More charts }

Maybe the easiest lucrative job in finance is:

Take a job at a hedge fund.
Get handed an employment agreement on the first day that says “you agree not to disclose any of our secrets unless required by law.”
Sign.
Take the agreement home with you.
Circle that sentence in red marker, write “$$$$$!!!!!” next to it and send it to the SEC.
The SEC extracts a $10 million fine.
They give you $3 million.
You can keep your job! Why not; it’s illegal to retaliate against whistleblowers.
Or, you know, get a new one and do it again.

[…]

The theory here is that the US Securities and Exchange Commission has a whistleblower protection rule that says that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”

[…]

Anyway:

OpenAI whistleblowers have filed a complaint with the Securities and Exchange Commission alleging the artificial intelligence company illegally prohibited its employees from warning regulators about the grave risks its technology may pose to humanity, calling for an investigation.

[…]

OpenAI made staff sign employee agreements that required them to waive their federal rights to whistleblower compensation, the letter said. These agreements also required OpenAI staff to get prior consent from the company if they wished to disclose information to federal authorities. OpenAI did not create exemptions in its employee nondisparagement clauses for disclosing securities violations to the SEC.

{ Matt Levine | Bloomberg | Continue reading }

New York usury law makes it illegal to charge very high interest rates on loans. If you charge more than 16% on a loan in New York, the borrower might not have to pay you back; if you charge more than 25%, you might be committing a crime. Some people want to charge higher rates on loans, and so they want to structure loans that don’t look like loans to avoid usury rules.

The classic general way to do this is to structure the loan as a purchase. If the borrower — sorry, let’s use a more neutral word, maybe “customer” — has an asset that will pay $100 in cash in a year, you can buy that asset today for $80. You’ll get the $100 in a year, for a 25% return on your money; the customer gets $80 today instead of $100 in a year. That’s a lot like the customer borrowing $80 today at 25% interest, but you have called it a purchase and sale rather than a loan. Legally, this might or might not work, depending on the details (if the asset turns out to be worthless, does the customer still have to pay you?).

Lots of quite normal high-finance lending works this way — “structuring a loan as a sale” roughly characterizes things like the repo market, asset-backed securities or receivables factoring — but, also, lots of shady usurious low-finance lending works this way. […]

Yellowstone Capital, a pioneer in a form of high-risk lending called merchant cash advance, was sued by New York’s attorney general for $1.4 billion for allegedly making illegal loans to small businesses.

For years, Yellowstone lent money at rates that exceeded usury limits – sometimes more than 800% annualized, according to the lawsuit filed in New York state court in Manhattan Tuesday.

{ Bloomberg | Continue reading }