LongHaul

Merry Xmas everyone.

https://www.wsj.com/articles/paul-volcker-who-guided-u-s-monetary-policy-and-finance-for-nearly-three-decades-is-dead-11575901675?mod=hp_lead_pos5 Mr. Volker is someone who I truly admired. He took the backlash to bring down inflation for the benefit of us all in the US. Unusually GREAT man.

From the 2018 IBKR annual. I really like Mr. Peterffy - one of a kind in the financial industry. One of the problems with PFOF is that the whole thing is not transparent to the retail customers. Where there is mystery, there is margin. I thought the other article posted a few posts before likely left out some big things. Dear Shareholders: Since we started our business 42 years ago, we have focused on automation to be able to provide superior services at lower cost and better execution prices than our competitors. This has served us well, as our 2018 results reflect. We hit new highs in client accounts, client equity and earnings in our brokerage business. While we are pleased with our success, we are concerned about an ongoing trend that will damage the U.S. equity markets if it continues. Over the past two decades, high frequency trading and the buying of retail orders by HFTs have become ever more prevalent phenomena in our markets. HFTs buy the retail orders and fill them internally by taking the other side of these orders. As a result, we see fewer and fewer retail orders come to the exchanges to trade with displayed limit orders. These limit orders end up trading with other institutional orders and with HFTs when they need to pass out of imbalanced positions they accumulated on one side of the market. Trading against HFTs and institutions taking liquidity is generally not profitable, at least in the short run. As a consequence, market participants are reluctant to place limit orders and the NBBO (the National Best Bid or Offer, or the highest limit order to buy and the lowest limit order to sell) becomes wider. HFTs are obligated to fill the orders they buy inside the NBBO to the extent of the size displayed. The wider the NBBO becomes, the more discretion an HFT has as to the price at which it fills the order and, therefore, the more profit it makes and the more it can then afford to pay for these orders. The more HFTs pay for retail orders, the more brokers will sell their orders to HFTs and, consequently, even fewer orders will trade at the exchanges in a competitive market. Also, the more payment the brokers receive for their customers' orders, the more they can discount the commissions they charge their customers. Hence the newly emerging zero commission brokers. However, the customer is likely to lose more on the execution price than she saves on the commission. This is a self-reinforcing feedback loop in which wider markets cause even wider markets, increasing payment for orders, moving more volume off the exchanges. Indeed, while in 2008 26.6% of the listed stock volume traded off the exchanges, by 2018 36.3% of the volume traded off exchange. What is the predictable consequence? Liquidity vanishes. Momentum traders drive the markets to more extreme highs and extreme lows in shorter periods of time. Investors holding margin accounts become less able to liquidate, adding to the price swings. This is a disaster waiting to happen. While all of us in the trading and investment community have in one way or another adapted, and would prefer to let things continue along the status quo, we cannot pretend that all is well the way it is. We must implement structural changes to the markets before it is too late. In this vein, we will draw our customers’ attention to our newly introduced “Midprice Orders” that attempt to fill orders in the middle of the NBBO. More volume trading at the midpoint will attract more midpoint orders, thereby reducing the viability of the payment-for-order-flow model and counteracting the vicious spiral to disaster that I describe above. With your participation, we are looking forward to a rewarding year. Sincerely, Thomas Peterffy Founder and CEO February 25, 2019

I agree - Flint Town was awesome. Learned a ton and super interesting.

https://www.freetaxusa.com/ $0 for Federal, $12.95 for State I would recommend checking it out (depending on your personal tax situation) because if you can save $60 per year x 10 = $600 per decade it seems worth it.

Super interesting. thx for posting. I realized I know almost nothing about this topic and it is super complex!

In the last 40 years or so Private Equity has grown enormously. It went from almost nothing to a large industry owning many businesses and employing a lot of people. By Private Equity I mean the LBO specialists. What do you think the effect has been on competition, pricing, etc from so much Private Equity (LBO) Ownership?

If it could be Russian Roulette - where is the bullet? A few degrees warmer is going to kill us all?

Never heard of Konosuke Matsushita? Me either until recently. He is known in Japan as the "God of Management" and built Matsushita Electric (Panosonic Corp). The story of Masushita is fascinating and Kotter is a really great writer and sees and expresses insights wonderfully. Panosonic started with basically nothing and grew to be an extraordinarily successful business. This is part of the story of Matsushita and how he did it and his different philosophies. To be blunt - in a lot of ways he makes Steve Jobs seems like an amateur. Matsushita was very different than the average entrepreneur and you can see that in his beliefs, action and philosophies. There is a lot in this book. I would give it an A+. Read it to understand. I am still trying to understand much of it as there is much depth to it.

Barriers to entry.

This is really a HOT button topic. After much deep thinking here is the solution to climate change: Tax cows $1 for each fart.

I think the climate is warming so that make sense to me. But - what I still don't understand is what is there to fear in 50 or 100 years? Is is the unknown? What is the unknown - it could be nothing or something very bad? Perhaps the unknown is good or perhaps keeping CO2 as it was 100 years ago is a worse unknown? I am just challenging assumptions because I still don't understand much of it and it is complicated and confusing. Perhaps the combination of the unknown plus change from here really scares people. I also think that if it does turn into a big problem, future generations will be able to solve it - probably more efficiently than we can. The greatest resource that we have on this planet is the human capacity for innovation. I don't just go along with the masses on things as history has shown many, many times that crowd psychology has made utter fools of the masses. Think of the witchhunts, nutty wars, genocides, financial bubbles, communist ideologies, etc. Best to try and remain independent. And I do think it is great idea for everyone to drive smaller cars, live in smaller homes, have less waste, etc. Good for the pocketbook and the environment. I thank everyone for their comments they have expanded my horizon. The mass extinctions were fascinating to read about FYI.

Cardboard posted this in another discussion. Definitely worth watching as stats are manipulated and he shows how. It does feel like some there is some type of climate change cult and it would very helpful to have data that is not fraudulent in some cases. I just don't think it is a big deal if the average temperature rises 1-2 degrees in 100 yrs. A bit more hurricanes or sea level we can deal with. I live in Texas and it is very hot in the summer - we get by. Fear sells papers. But I may be wrong on not seeing the long term effects. Either way there are people dying today from solvable problems so I think those areas - clean water, sanitation, vaccines are better to focus on.

Fair point on the really bad effects and unknowns. I agree also, if it doesn't cost anything we should do it. Climate change primary,secondary effects seem very hard to estimate and predict 100 years out. It would likely be gradual - not a sudden tsunami or anything though. There could also be very large benefits that are not talked about much. Warmer temps in much of the colder climates and ability to grow more food there, perhaps less net deaths from warmer weather in the winter, net actually much better for the environment if plants can have more CO2 and grow faster, etc.

Will Climate Change really be such a NET negative in 50-100 years that I should be concerned about it OR is it some nutty recent environmental ideology where humans have joined in massive group think/crowd psychology and should just be ignored? Climate Change as a problem is in the news almost everyday. I actually care a lot for the environment in a lot of ways and like clean air, water, etc. Curious on everyone's thoughts.

Feel free to call a WSJ reporter. They are generally looking for stories and this might get their interest for a story. Not sure which reporter would be a good fit but perhaps one that has covered similar regulation. WSJ Newsroom: 212-416-2000

Enjoyed the article and the responses. As I have gotten older I really have a ton of respect for the super rich who remain humble. Maybe it is best to live your life materialistically like a middle class person even if you can afford more - old car, moderate size house, basic foods and restaurants, fly coach, etc. I little discomfort now and then makes one tougher and humbler. The other thing that I run into a lot is essentially people engaged in legal theft from others. It is disgusting and lacks character. And for what - a little bit of coin.

I generally use Google Sheets for watchlists. I think there is an opportunity also (perhaps really big) in doing a great finance site. I agree, most of the sites IMO have gotten worse Yahoo, Morningstar and Google. The free competition is weak in a lot of ways for a fundamental investor.

Interesting last few posts. I guess that sounds better in their S-1 than we rent office space. BTW - Wework burned ~$2.2b in 2018. and ~$2.9b LTM as of June 2019. Wow - that is a lot of dough. And their balance sheet lease liability is $18.4b. I would think this is a wipeout and the landlords will be holding the unsecured bag. Edited for corrections.

There were hundreds or thousands of companies like this in the dot.com bubble. Growing revenues and huge losses that had minimal scale effects. It was total insanity. It was a frenzy though and speculators kept throwing money into it until it all blew up. Funny enough there are copycats of Wework. One day the funding window will shut for speculative garbage and many will fail.

I view Wework as total insanity. Just a quick look at the financial statements with around -100% EBIT margins is nuts. I guess someone in that company is good at telling and selling a story. -Massive losses -No competitive advantage -High risk business -Stupid price to pay for Wework I kid you not - I showed Wework's Income statements to my kids and I asked them how much they would pay. Both said ZERO in about 2 minutes independently. But they don't have an MBA.

They will care again after the US defaults.

I am not a legal expert but from what I have read if you are guilty you want a jury. If innocent you want a judge. I was on a traffic ticket jury where someone was speeding and it ended up in court. The speeding party actually admitted on the stand he was speeding. I thought 5 minutes tops in jury discussion. ~2-3 hours later it was a hung jury because one lady didn't think he was guilty. She had no logical argument why. The defense just needs to fool one jury member to get the person off. The US legal system is not perfect (there is no perfect system of justice) but compared to China and Russia I will take it any day.

I really like this site. Found it when researching democracy trends. https://ourworldindata.org/democracy

Would you want to know if you were on the other side? I would. My experience echoes some of the other members. I tell the other party and they listen and try to take action or they just stick their head in the sand. It depends on the person involved (ie big ego, etc). Don't take their reaction personally at all if it is adverse. I have heard from an "insider" that some of these complex annuities are like scams to be avoided. (sarcasm: They are so complex and the person selling it must be smart because it is complex so the salesman must be financially sophisticated. I don't want to say I don't understand it because that would make me look like an idiot.) It is a powerful thing saying "I don't understand" or "I don't know" but the most difficult answer of all.