I don’t know a whole lot about professional investing, but if watching The Big Short has taught me anything it’s that the pros will say one thing publicly but do the opposite in private until it’s to their advantage to do a 180 and make their private stance actually public.
Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase.
The following exchange from The Big Short stuck with me. It’s Dr. Burry’s response to Goldman Sachs when they finally returned his numerous calls:
Deeb: Dr. Burry?
Burry: Yeah.
Deeb: Deeb Winston, Goldman Sachs. Listen, I've been reviewing your position. I wanted to discuss your marks and make sure they're fair.
Burry: Yeah, I think you mean that you've secured a net short position yourselves. So you're free to mark my swaps accurately for once because it's now in your interest to do so.
Deeb: I'm not sure what you want me to say.
Burry: I think that...I think that you've already said it.
It's great that you recognize professional investing isn't something you know a lot about.
It's a bit concerning that people believe a hollywood movie has taught them how the industry works. Keep in mind how hollywood portrays "hackers" or "scientists" or "Russians" or whatever group is an outsider or opposition to the protagonist and realize they're doing the same to finance.
While clearly not all of Hollywood portrays the industry accurately, from my perspective the movie was incredibly reflective of the players in the space, and the dynamics.
I worked in the mortgage/CDO/CDS industry for 10yrs during that period (2005-2015).
If anything, the movie was too positive. There aren't as many players like Steve Carell's character who are worried about the world, they are usually worried about how to liquidate their book at the right time.
The bit about getting marked the wrong way was especially spot on.
I recommend 3 movies to every family member willing to deal with financial topics as a form of edutainment. The Big Short and Margin Call are two of them.
The 3rd one is 99 Homes. The key line is: "Don't get emotional about real estate." What is sold as a place for family memories for some, is just another asset class for others.
Certainly the movie is a bit exaggerated, but I'm not sure what your exact point of contention is with that scenario?
OTC or seldom traded securities may not operate in the same way that a highly traded stock like Apple does from a price standpoint. For a boutique security that is created for a customer, the price is whatever the market is willing to pay - but the discovery of that price can quite literally happen over the phone because in the market there might only be one customer and if you sell to them... that's the price!
So assuming that Michael Burry (in this instance) actually had Goldman Sachs create a boutique security, price discovery may very well have happened over the phone in just such a manner. I don't know the details but I'm also not sure why you would think that this can't happen? Please feel free to educate me. I don't know much about professional investing either.
He's right though. Most public-facing statements from big banks and trading firms can be taken with a heavy serving of salt. Many times they are either doing the opposite or telling their actual big whales to do the opposite. Bill Ackermann going on CNBC crying and causing people to panic sell stocks near the March 2020 lows comes to mind.
This is sort of an inverse situation, as those with industry experience are recognizing truth in that scene and someone outside the industry is scoffing at it.
What they said is a basic property of humans who value money (object of value) over morals, it's hardly limited to wall street. Whether it's depicted in a hollywood flick or medieval morality play. It's as old as humanity
> Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase.
Did he change his position, though. Having a negative opinion of something is one thing; and profiting from selling shovels for the gold rush is another thing. The trading desk is not a long position.
In the case of bitcoin, it probably is. Legitimising bitcoin as an investment for institutionals pushes the price higher, and also increases trading volumes and thereby trading profits. In contrast with stocks, where a sell off generally brings volatility and good news to trading desks.
Just because adds some legitimacy and pushes bitcoin prices higher doesn't have to mean that JPM (let alone Dimon himself) has a long position nor a longterm positive belief in bitcoin. Maybe they do! But maybe they just want to make some money selling shovels.
Generally investors want to convince other investors of the truth (as they see it) once they've already made the bet.
The exception to that rule is if you have trouble getting OUT of an illiquid position (as in the example you quote) - then you don't want to panic other investors before you've successfully taken the other side.
Big fund holdings (without knowing their full strategy) are insightful, but only in the sense that you can see how many big funds are holding a particular stock.
Looking just at holdings of any one fund can be pointless since you never know how these holding are part of some bigger strategy especially when you don't know what other derivatives they're holding like options / futures and other non publicly traded products. Any particular holding might also be part of a bigger ploy. It can be part of a hedge / bet / short / or acquisition strategy. Any single holding can also be part of multiple portfolios within one fund each with their own diverse investment goals.
I think this is quite normal for larger corporations. At any given time they operate on multiple layers and they may not even be compatible with each other: there's the public image of the company, revenue targets, political pirouette,or internal battles between departments. Even in a small company I had enough situations where I have to say one thing but do the opposite.
It's critical to explaining that investment banks can be wrong, stupid, or both for very long periods of time, and that can make the whole world worse off.
Considering he said in 2017 [0] that he would fire anyone trading Bitcoin for being "stupid", yes, the GP's astonishment about Jamie Dimon is well placed.
Do you understand the difference between brokering trades for clients, and what you allow employees to trade using the banks capital?
There are all sorts of arbitrage and correlation trades to be made in bonds, stocks and similar securities (mortgages) because they all have intrinsic values or maturity dates, etc. To protect the banks capital it’s important to restrict the types of trades allowed, and to disallow pure speculation.
Jamie in that article describes cryptocurrencies as pure speculation because they have no intrinsic value, which is why he said he’d never allow employees to trade them.
But one thing I believe about Jamie Dimon is that he has a sharp and flexible mind. If the newer innovations in the DeFi markets around crypto convince him he’s wrong about cryptocurrencies, he will turn on a dime. While still putting in adequate safeguards for his banks capital.
I’ve been watching WSB with interest for a bit. This has not been what they’ve been about until January of this year. Before it was basically a place where the one eyed were leading the blind: someone would post their research on a particular play, like buying TSLA options for a particular date at a particular price because they think the phase of the moon and the mood of the CEO will line up to give the stock price a bump, and then everyone putting their 401k savings all into that play because it sounded plausible. Sometimes it would pay off, often it resulted in people losing lots of money. The “specialness” of the community came from when people posted “loss porn” aka screenshots of their accounts with huge losses, people would basically be really encouraging towards the poster. It was a sort of sign of respect that you risked it all and lost.
Actually buying stock and not just options is brand new to that group, and they have nearly doubled in size since January so it seems to be going through serious transitions. Now they are doing what they can to put the thumb on the scale to squeeze hedge funds out of their GME positions. The crux of it is whether enough shorts have been made to make this possible and the rumor de jour is that hedge funds misreport their positions. Whether this is true or not, well if you look at WSB posts they’ll say it’s obviously true. I am not convinced personally.
To be clear, WSB to me appears to be doing absolutely nothing illegal or wrong to manipulate the market. The only coordinated effort is to buy GME and AMC and not sell the stock unless it seriously goes up in value (current posts think it’ll go to $10k-100k). They suspect hedge funds are performing ladder attacks to lower the price, so every time the price dips the advice is to buy more. I don’t see how simply buying stock at market price is market manipulation except that it does have an effect on the volume of a particular stock.
WSB is an "extreme" example. I think it happens ALL the time in very common places (including HN).
Some types of market manipulation are truly a bad thing. I'm sure someone engaging in some of the more egregious cases could rationalize their behavior as "it's just guerilla marketing, everybody does that".
That's not wholly wrong -- the intent is really more important than the action in these cases. Were people buying GME because they legit thought the fundamentals of the company were good now or were they riding a bubble?
I'm already too far down the river though, because now we could argue about whether there is something fundamentally wrong about speculating on pricing alone.
From what I can tell, currently WSB is riding the bubble. Or rather their thesis is that a short squeeze will happen. In some conversations they try to justify that the company will actually turn itself around using the capital raised from selling the new generation of consoles, but quickly the conversation turns to the prospect of the squeeze. In other words, most people who are buying GME from WSB advice aren't there to hold the stock long term because they think it'll grow 2-5% per year because of the company doing well. They are in it to overnight have it grow by 10,000% or some such because "when the squeeze happens every single investor can name their price for the shares they own because hedge funds will need to buy every share available".
I am not a financial expert, but to me this seems extremely bogus. I am not certain where exactly the math is wrong, but it seems like a hedge fund can just buy the shares from the people they borrowed from, and those people will be willing to sell because the price had risen a bit. WSB on the other hand has no strategy beyond "a squeeze will happen". There is no agreed up on price at which to sell, which will lead to some people going right past, say, $10k/share price point holding out for $100k/share, and then the price falling back down to earth while they are left holding the bag, having bought in at $300/share or whatever.
> but it seems like a hedge fund can just buy the shares from the people they borrowed from
That's not how it works. A short position is basically the contract to deliver a stock regardless of its price at that point, so neither the short holder nor the party that gave them the stock in the first place actually hold that stock anymore.
Now I don't know this exactly and I am not an expert, but I wouldn't be surprised if short positions can exist absolutely independently from the existence of any actual stock. In principle, there can be agreements that only deal with the price of the stock. And something that can exist in principle probably also exists in the financial markets.
So whether or not an actual short squeeze will occur depends on the technicalities of the short positions.
The crux of the situation I don't understand is (a) where does the claim that hedge funds would have to buy all the available shares on the market comes from? and (b) what exactly happens if [a] is true, but I'm not selling my 1 share that they need to return to you the share they borrowed? In this case, do they pay a penalty, does they go out of business and you don't get your share back, or does the whole system collapse on itself?
a) (hopefully) comes from an analysis of standardized and published contracts ("short positions"). Presumably, a hedge fund has to publicly announce which such positions they hold. So in theory, you should be able to dog through the data and sum up all the positions. If people on wsb did this, if it even works that way, I don't know.
Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.
When you know CompanyA fires a bunch of people, the price goes up because of the perception that the company will have more capital to leverage. Knowing that an event has happened or expect the consequence of an event (CompanyA gets sued for patent violation) to have an effect on the company, changes the stock price through participation. GME is an interesting case where the event is perceived to be a complex situation with an outcome that is believed to be good for participants, increasing participation and driving the price up. I don't see how it's special, other than someone with a lot of money made a plan that motivated participants to believe in that plan, then play against it.
The difference is that the value of GME isn't in any way connected to its fundamentals here. It is only valuable because of the (supposed) overshorting. Basically, the way I understand it is that everyone is playing poker with tin poker chips. By themselves the poker chips are nearly worthless (tin is cheap), but because suddenly someone owes someone else a whole lot of these chips and there are real green dollars attached to that IOW, the tin chips suddenly are worth a lot. Once that debt is repaid, they become worth only what the tin is worth.
In other words, when the guy that started it all (Roaring Kitty/DFV) testified before congress that the only reason he was buying GME was because he fundamentally thought they were going to be a profitable corporation, that was bullshit. He talks a whole lot about short squeezing the stock elsewhere, so his denial that that's why he did it seems to me to be a lie. On a personal level, he seems shady as hell and the whole thing seems like a setup for others to be left holding the bag.
I think this has been going on longer, but the players are different now. It looks like it used to be a forum for smaller players and well capitalized individuals to pump small volume options positions, because you can make a few k off of retail investors following your bait in a tiny pocket of the market. Now it’s something that bigger investors noticed and are now participating in.
Not an expert at all but the way WSB explains it, it’s where hedge funds trade GME back and forth between each other, gradually lowering the price with each trade. It’s a coordinated effort toy manipulate the market and is illegal. According to WSB the SEC either doesn’t care or fines hedge funds so little for stuff like this that it’s worth it to them to do it anyways (as well as selling naked short and under reporting short interest). As I said, I have been watching what WSB is doing for entertainment value so all of this is suspect.
I’m 90% sure that this is just something WSB made up and isn’t actually evidence of manipulation. Seeing as you can look at the order books for almost all exchange traded stocks and see similar trading patterns. (Unless you believe that all stocks are being manipulated, which is a stretch.)
How do they sell a public stock back and forth between each other? How could one fund put shares up at a given price (especially one below the current bid price) and ensure their partner fund is matched as the buyer?
Wouldn’t a market maker need to collude as well?
Not saying it’s not true, I genuinely curious as to the mechanics.
But what about all the other bids and asks in the book? If you’re trying to drive the price down, there will be buy orders at higher prices your sell order will be matched with first.
The SEC is on the hook to investigate anything reported to them. If they aren't investigating, then it's not being reported. Additionally, there is an incentive to report shady behavior(such as wash sales to lower price, as you described): https://www.sec.gov/whistleblower
tldr; the SEC pays you a portion of any fine they levy against an entity.
Jamie Dimon has a reputation for brilliance. His Bitcoin comments were spot on, people criticizing them don’t understand the regulations banks live under.
BTC may be great, but it has no intrinsic value and trading it is pure speculation. That’s not appropriate use of bank capital. It’s probably not an appropriate use of most peoples capital.
I'm not pointing to his commentary on Bitcoin or whatever. I was just stating a fact, that Dimon isn't considered brilliant by any Mark by industry insiders in finance, just lucky during 08. He has been wrong on a lot of things, even though I actually agree with his crypto thesis.
I’m not sure what you mean, his bank was the strongest and most highly capitalized during 2008. He famously had to be brow beaten into accepting federal bailout money.
And brilliant doesn’t mean perfect. he’s had his share of mistakes, but his business record is one of the best.
a.) Jamie Dimon had nothing to do with JPMorgan's strong financial position in 2008. He just lucked into the fact that JPM was not exposed to MBSs as heavily as the others. JPM did get exposed mightily in the flash crash of 2012 though, and that was under his watch.
2.) Where do you get this info that he was "brow-beaten" into accepting Fed money? Many of the banks, including others such as Wells Fargo and Boa didn't need the money either. That was just Hank Paulson's way of compensating them for the really expensive acquisitions, which none of the banks wanted to do really (JPM got Chase, Wells Fargo got Wachovia, BoA got Merrill Lynch, Buffett got Goldman Sachs and Lehman was left to die).
3.) There are way more brilliant bankers and financiers than Dimon in the financial industry. Steven Schwarzman and Peter Peterson built a behemoth investment firm from the ground up. Sergio Ermotti just engineered one of the best turnarounds for a big bank at UBS. Blankfein and now Solomon effectively shifted GS from their S&T desks to give more power to the Strats Tech teams, effectively changing the culture at GS, a sector where JPM is effectively lagging in spite of being the largest bank with the biggest resources. And this is not even taking into account some of the more brilliant bankers abroad.
Compared to nitwists like Thain or Corbat or whoever, sure Jamie Dimon beats them. But there are way more brilliant bankers who actually built something. Jamie is the classic example of happened to be at the right place at the right time.
I honestly don't know how this hero-worship of Dimon came to be - maybe it's those memes they have running around.
1.) It's standard practice for COOs to take over when CEOs leave. Jamie Dimon's COO position was a result of the merger between Bank One and JPMorgan. Nothing unique.
2.) Different banks had different focus areas, and not everyone jumped into the MBS bandwagon. If you notice, all investment-banking oriented banks got rekted while all the consumer banks stayed afloat, bar some exceptional risky bets by the likes of Wachovia and Chase. All the survivors were consumer banks eating up investment banks.
3.) A profit that can be attributed from the consumer banking side.
4.) Most of the annualized return you mentioned comes from 2017 on, when the tax cuts came. Not the 15 years you mention. Before that, it was lagging at 50$ per share.
1) yes he was second in command got 4 years, and in total control for two more, how is that not give him huge influence on the banks capital structure?
2) So for 6 years he could have had his team chase bigger profits like Wachovia, Bear Stearns, et al by making risky bets on MBS but didn’t.
3) he’s not responsible for the consumer banking side?
4) Everyone in the S&P 500 all got the same tax cuts, yet he finished over 50% ahead of the average. And they are all up big since 2017, but he’s still way ahead.
1.) Do you think upper management in banks even care about what happens in individual teams? Pre-2008, upper management was significantly detached from the individual departments in every bank. Its only now that they are being regulated to take a much closer look. Second-in-command does not mean he's at the trenches dictating trading rules - thats up to individual product teams. And back then, JPMorgan wasn't even comparable to the Bear, ML, GS in S&T. JPMorgan's bread and butter was and continues to be Corporate Financing and Consumer Finance.
2.) Who knows, if 2008 hadn't happened, he might have joined the bandwagon too. Not to mention that JPMorgan's S&T was nothing compared to those players in 2008, so obviously their "risky bets" were minimal.
3.) You're going to attribute consumer side banking to him? Consumer banking is literally a safe-side cash cow for most banks, and you can literally see a number of institutions engaging in it continue to stay safe. He cannot be credited for that.
5.) There are n other companies that have grown even more than JPM. If you're going to use stock prices as a proxy for your argument (which is flawed in itself), GS is currently at 350, almost half of which was gained in the past month. Compared to GS, JPM does seem like a crapper here.
I don't know what's your motivation behind defending Dimon or something, but I'm just echoing the common sentiment in the industry, that he plays it too safe, his cautiousness (often attributed to his ignorance of newer tech) has made JPM a laggard before, and that he was lucky to be loyal dog at Bank One. There are far more brilliant bankers in the industry, for instance Kovacevich who actually changed the face of consumer finance (worse for the consumer eventually, but still changed the face of the industry) or the Blankfein-Solomon duo who brought tech from the backburner and made it one of the most elite teams in the world banking scene (cue Strats and Marcus). Dimon is just like Stumpf (pre-WF scandal) in that he was given one of the biggest banks to play with. I agree, it's not an easy task in itself, but it's certainly not a hard enough one to call him a "brilliant" banker for that.
Perhaps a few quants in the bank have higher IQ, but you don't make it to CEO of a large bank by being stupid. A carefully cultivated image of being "not the smartest bulb" can be a powerful advantage. Making dumb mistakes when it doesn't matter can make people underestimate you at more crucial moments.
I didn't mean the CEOs of large financial institutions are stupid( at least not most of them). To get to such positions by only being smart is never enough: there's a plethora of skills and personal traits that play their part.
Lol, this is some nth order thought going on here. Simon's dimness isn't proofed by some bullshit crafted image but by how laggardly JPMorgan is due to Dimon's innate cautiousness. Dimon is just lucky to be head of America's largest bank at the turn of '08. Next you'll tell me IBM is a highly innovative company, I reckon.
On this topic, I've seen news reports that the GME short squeeze will happen 'any day now' according to analysts. Now, that initially makes me believe they're attempting to encourage buying, which raises prices. (In prior weeks, financial media implored retail to get out; there has been a very apparent shift in sentiment). Assuming financial media is a mouthpiece for key market participants, I found the reports surprising. Unless it's a 3D chess move: since we all so publicly are aware their statements have negative correlation to their securities positions, perhaps the rules for interpreting public statements have changed.
If they always act as predictably as stated, there's too obvious of an arbitrage opportunity.
Don't overthink it. They just want to sell to retail at the highest price possible. Either they want to short GME or they want to unload their current positions.
Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase.
The following exchange from The Big Short stuck with me. It’s Dr. Burry’s response to Goldman Sachs when they finally returned his numerous calls:
Deeb: Dr. Burry? Burry: Yeah. Deeb: Deeb Winston, Goldman Sachs. Listen, I've been reviewing your position. I wanted to discuss your marks and make sure they're fair. Burry: Yeah, I think you mean that you've secured a net short position yourselves. So you're free to mark my swaps accurately for once because it's now in your interest to do so. Deeb: I'm not sure what you want me to say. Burry: I think that...I think that you've already said it.