ValueArb

That said the SEC complaint sure complains a lot of allegations that seem to be perfectly normal and reasonable trading behavior.

I really don't have any issue with people immediately trading a position they touted. I'd rather a thousand scammers go free than an innocent get crucified. Investing is almost exclusively "buyer beware" and if you trade without doing your own research I don't have much sympathy. Trying to set arbitrary rules like "you have to wait 3 days" or "1 hour" is just useless regulation that won't protect anyone and will be used to harass those trying to operating ethically just as sure as it will be those who aren't. But that said, I hadn't read Matt Levines last column before I posted my milquetoast support for Andrew Left, and it includes damning details the SEC press release didn't. To me the red line is when an investor issues statements claiming X is worth $Y, and publicly states they are going to hold until then or another price target but secretly dumps before then. I don't care if you think $10 stock X is worthless and close your short at $9 immediately after publicly releasing your research, that's all consistent with your belief and whatever risk management you use or short term gains you want to capture. But if you say you aren't going to sell until $5 and sell at $9, that's misleading on its face and potential evidence of fraud. And its obvious fraud if you get caught privately telling partners that your research is bullshit, you are just trying to move the stock for a quick gain. So this is what Levine reports the SEC has alleged. Public shorts should get a complete liability waiver if they report all your trades honestly and quickly, like within 24 hours. Then it doesn't matter if they think that $10 stock is worthless but took risk off the table covering at $9 for a quick gain. The public has all the information they need to judge whether to give their report any weight, or to heavily discount it.

If you were correct, the question is why doesn't the SEC do anything about stock pumping? When was the last time they prosecuted a case like the one you describe? One reason is that there is nothing wrong with making a recommendation and then trading after its been made public. If you think the IV of XYZ is 5x so you buy it, publicize your research, and the stock jumps you still have the right to sell it. Even if its below your best case intrinsic value estimate there is the time value of money, risk that you are wrong, and sometimes even the next day you can realize you were too optimistic. In the case of Left and Citron the SEC complaint is made of tissue paper. They "allege" he issued recommendations on stocks he thought were overvalued, and then sold as soon as they declined in price. Uh, that's exactly how short selling works. If your research shows that Stock A trading at $10 has substantial problems and after you publicize them and opine it might be worthless it declines to $7, why wouldn't you sell some or all of your position? There is always risk that it will rebound with a company PR effort to refute your findings, you may not have time to wait or want to wait until lawsuits/bankruptcy proves your thesis and you might even be wrong. Selling after publicizing is not evidence of any illegal or unethical behavior. It will probably revolve around how much heavy lifting the words "quickly" and "immediately" are doing in the SEC press release. But it seems absurd to claim that it was "immediate", he has to publicize his finding well enough to his clients and publicly for the stock to actually move before he can close his own positions. So clearly his clients knew the information before he traded, so they were fully informed and at what prices they bought/sold are their decisions. The only allegation that looks legit is the charge of lying about hedge funds paying them. There should be nothing wrong in accepting compensation from hedge funds for your part in finding and publicizing frauds, but it's always a crime to lie to a federal agent. If his hedge fund arrangements were legal, I don't know why Left lied. Maybe because he did not want it publicly known he was working with and accepting payments from hedge funds since it looks bad to the retail crowd and he'd was already taking a lot of flack that might have been impeding his ability to get clients/investors. So now he's probably on the Martha Stewart track, where they weren't able to show she committed insider trading, but were able to put her in prison for lying to a federal investigator as evidence she was part of a conspiracy to help cover up her brokers insider trading. Left may have been suffering from "Martha Steward Ego" where he thought he was smarter than the feds. Short selling is a brutally tough business, which is maybe why it seems to attract tough minded people with massive enough egos to be willing to shoulder relentless public derision and maybe those attributes are too often paired with habitual line crossing and ethical weaknesses. If so its sad, because short sellers in aggregate do far more to protect investors than the SEC ever has, so those that actually do commit fraud are undercutting the beneficial work of the rest.

This is just the SECs continuing attack on free spreading. Sounds like Lefts only sin was talking to investigators. Let’s not forget the SEC is loathe to take similar actions against pumpers like Roaring Kitty or Musk, because they are popular, despite their actions hurting investors. Instead it targets short sellers because they are unpopular, despite their actions benefiting investors.

Work at home, rarely date or leave house. Did do a lot of hot yoga last couple years so surprised that wasn’t the vector, but it turns out a week of playing poker in LA with a melting pot of ethnicities till 4 am every night left my body unable to defend itself any longer.

Thank god I got back in shape the last year. Just had COVID for the first time and it was brutal. There were a couple times I struggled breathing, can’t imagine what it would have been like before I lost 35 lbs.

The watch business has lost a lot of revenues to Apple over the last decade, last time it was analyzed Apple Watch makes more profits than the rest of the market combined, and IIRC something close to half the revenues.

Spending a week in the fine casinos of the city of angels, as baby needs tuition for fall semester.

one of the few things I applaud Trump for.

Catching up on my Matt Levine columns, from last week interesting discussion of the Berkshire trading glitch and how some Interactive Brokers customers put in market orders trying to get A shares for $200 ended up paying $720,000/share, and how IB covered their loss for them. Incredible stuff. The main point to make here is that, while $741,971.39 is in some sense the “wrong” price for BRK/A — Berkshire Hathaway Inc.’s extremely high-priced main share class — it is much, much, much closer to the “right” price than $185 is. The stock has traded in the low $600,000s all month, other than the June 3 anomalies, and of those anomalies $185 was considerably more anomalous than $741,971.39. But what seems to have happened is something like this: For glitch reasons, the price fell from $622,000 to $185. Recognizing the glitch, NYSE halted trading. It took almost two hours to restart trading. During that time, NYSE kept taking orders to trade BRK/A, which would execute upon the reopening. Many of those orders came from professional market makers, high-frequency trading firms, etc. Those professional orders would normally take the form of limit orders on both sides of the market, a sort of schedule of supply and demand. A market maker might put in orders like “I’d buy 2 shares at $621,000, and I’d buy 10 more at $620,000, and I’d buy 20 more at $619,000, or I’d sell 2 shares for $623,000, and I’d sell 10 more for $624,000, and I’d sell 20 more for $625,000.” And the exchange would build up an order book of limit orders around what market makers figured was the fair price, with some orders right around that fair price (the “midpoint price”) and others further away. Also, though, during that time, people “across social media” saw that BRK/A had traded at $185, a 99.97% discount to its real value. They thought “ah, super, a sale on BRK/A.” So they put in limit orders to buy the stock at a price no higher than, say, $190 per share, a bit above where it last traded. No, I’m kidding. I mean, maybe some of them did. Maybe some investors put in limit orders to buy BRK/A during that halt, with limit prices of $185 or $190 or $200 or $1,000. And none of those orders were executed, because by the time the stock reopened it was trading at $648,000. Which is fine. You saw BRK/A trading at $185, you thought “ah, that would be a good deal, if I could actually get it,” you put in an order saying “if I can really get BRK/A at these prices, I’d like to,” and you were slightly disappointed but surely not surprised that you couldn’t. But at least some Interactive Brokers customers instead put in market orders to buy BRK/A at whatever price it traded at when it reopened. Which was obviously not going to be $185. It was going to be $622,000. Except it wasn’t $622,000 either: So many people apparently put in market orders to buy BRK/A, because they saw it trading at a discount, that “a substantial order imbalance … developed during the halt.” And so the professional market makers, seeing that there were more buyers than sellers in the order book, raised their limit orders, so that the new midpoint price was closer to $648,000. And even so, the imbalance of market buy orders ate through the order book, so that all of the market makers’ sell orders were executed until the stock traded at $741,971.39, and some of those retail orders were filled at that price. And then, once all the retail market orders were executed, the stock went back to normal. BRK/A was trading around $628,000 by 12:15. In some sense, if you tried to buy Berkshire Hathaway A stock using market orders because you read on social media that you could get it at a 99.97% discount to fair value, and instead you ended up getting it at almost a 20% premium to fair value, that is your fault and you deserve what you get. These people, Interactive Brokers presumes, were not steamrolled by market volatility while they were trying to buy Berkshire Hathaway at a normal price: They were trying to take it from people who were accidentally selling it at a discount, and they deserved to get steamrolled.[2] But in some other sense, that’s not good customer service, and it’s also kind of risky. (What if you really did have $20,000 in your account and tried to buy 100 shares? How is your broker going to get $74 million out of you?) So that Interactive Brokers press release that I quoted goes on: If you did this dumb trade, Interactive Brokers fixed it for you: They took over the trades and ended up buying a lot of BRK/A stock for roughly $48 million more than it was worth.[3] Interactive Brokers also “filed a clearly erroneous execution (‘CEE’) petition with NYSE and certain other U.S. exchanges, seeking to bust the trades that had occurred at anomalously high prices during the disorderly market that followed the resumption of trading.” But the exchanges declined to bust the trades, apparently on the reasoning that those trades were not clearly erroneous. Paying $648,000, or even $741,971.39, for BRK/A shares is not crazy. Paying $185 is. The customers tried to buy the stock at clearly erroneous prices, but they ended up buying it at regular prices. Erroneously. They made the error, not the market.

I'm a week behind in reading Matt Levine, but this discussion of the selling of FTX claims and whether verbal commitments are binding or whether the sellers can reneg and get the higher than expected payouts seems interesting. FTX claims were trading at close to zero cents on the dollar when FTX first went bankrupt, and are now likely to pay back at least 118 cents on the dollar. If you agreed to sell your claim at 30 cents on the dollar, but there was a long delay between the verbal agreement and finalizing the paperwork, then arguably you had a free option: If the claim’s value fell to 20 cents, you’d close the deal and sell it for the 30 cents you agreed to, but if it rose to 50 cents, you’d find a problem with the paperwork and get out of the deal.[3] And in fact it rose to 118 cents, and a lot of sellers seem to be trying to get out of their deals. Also: Yes, right. One is tempted to say “if only these trades took place on the blockchain, then there would be no dispute about who owned them: Settlement would be instantaneous, and the claims would be tradeable tokens whose ownership could be proven based on an open, tamper-proof blockchain.” But of course people have tried to build tokenized platforms for trading crypto bankruptcy claims. Most notably, the guys from Three Arrows Capital, the famously imploded crypto hedge fund, were building one! Surely you trust them, right?

As a value investor what irritates me is someone promoting a stock by talking about how great the company is while ignoring its valuation, which essentially is many of these catch phrases do. It's like the Sandberg's old advice for lawyers: For stock promoters, is something like "If the valuation is poor, talk about the opportunity. If the opportunity is poor, talk about the valuation. If both are poor, have Cramer pound the table and yell like hell"

Much of its going to be sold too. But I don't see how even sellling $9B worth over months going to affect BTC price much.

An outstanding detailed explanation of the MMTLP debacle. TLDR: SEC claims managment was trying to engineer short-squeezes using worthless oil and gas claims, succeeding the first time but the 2nd time FINRA stepped in and stopped trading two days ahead of its conversion to an illiquid security to protect shareholders and now there is a mob of angry retail speculators stuck with worthless stock blaming it. But they couldn’t market the plan too explicitly, because, you know, this really is market manipulation. You can’t go around saying “we structured this merger to do a short squeeze”; you have to have some corporate finance reason for it. So the SEC also complains that they didn’t mention the short squeeze in their official communications to shareholders: That is, it was market manipulation for Brda and Palikaras to go around telling some shareholders that they had concocted a short squeeze, but it was also fraud for them not to tell other shareholders that. Also, to be fair, they were telling shareholders this on Twitter, but subtly. Sort of: Here is that picture: This all basically worked. Torchlight and Meta Materials signed their merger agreement in December 2020; the merger closed on June 28, 2021. On June 14, two weeks before closing, Torchlight announced the record date for the MMTLP dividend: People who held Torchlight shares as of June 24 would get shares of MMTLP. The theory was that short sellers would have to buy back their Torchlight shares by June 22 (for T+2 settlement: If you buy on June 22, you get the shares on June 24), or else be stuck with no way to get MMTLP. So the short squeeze should peak on June 22. The SEC says: Torchlight did its at-the-market offering between June 18 and June 24, selling 16.2 million shares at an average price of $8.50 and raising $137.5 million. By June 28, after the merger closed, the stock had fallen to $1.99.[3] Torchlight’s marketing of the short squeeze worked to prop up its stock for a bit, and Torchlight took advantage to raise money. But how did it work? Why did the stock go up? One possibility is that the shorts were in fact squeezed and had to buy back their Torchlight shares. Another possibility is that the shorts were fine — they were able to close out easily, or they rolled their Torchlight shorts into new MMTLP shorts — and what drove the stock was not a short squeeze but a meme-stock effect. Torchlight shareholders got Brda’s and Palikaras’s somewhat coy message — that there would be a short squeeze peaking on June 22 — and rushed to buy the stock to profit from the short squeeze.[4] Even if the short squeeze never materialized, if people believed that it would, that would push up the price. Surprisingly, the SEC doesn’t know which explanation is right: The SEC thinks that either of these is fraud. If the scheme succeeded in burning the shorts, then it is market manipulation: Brda and Palikaras artificially drove up the price of the stock by secretly engineering a short squeeze. If the scheme failed to burn the shorts, then it is still market manipulation: They artificially drove up the stock by openly claiming they were engineering a short squeeze. There is something logically inconsistent about this, but you get the idea. Brda and Palikaras were coyly half-marketing the short squeeze, both concealing it and advertising it, and either way it would be fraud. Now, I will go ahead and guess that the answer is mostly the latter, and that in fact the Torchlight shorts mostly were not burned, and that instead the victims were Torchlight shareholders who believed in the short-squeeze theory. I am not confident about this, but it’s my best guess. And here’s why. This story has taken us through June 2021, when the merger closed and Torchlight/Meta raised all this money from shareholders. But there is a long subsequent history of MMTLP, which the SEC only hints at in its announcement today, saying: “A separate Commission investigation regarding subsequent events related to Meta Materials (MMTLP) remains ongoing.” But when we talked about MMTLP last year, it was mostly about post-2021 events. Meta never did sell those old Torchlight oil and gas assets. The SEC now says that it never planned to, that the properties were hard to value and nobody would want them, and that Brda’s claims that they’d be worth between $1 and $20 per MMTLP share were far too optimistic. Instead — as the SEC says they planned to do all along — Meta ultimately announced that it would spin those assets out, in a separate company, to holders of MMTLP, to replace their MMTLP shares. The new company is called Next Bridge Hydrocarbons, and it is extra-super-duper non-tradable. Because it turns out that MMTLP, which was intended not to be tradable, traded anyway: Meta never got it a listing on a stock exchange, but it traded in over-the-counter markets. And there were short sellers. Or at least, people thought there were. Maybe the short sellers had actually borrowed and shorted MMTLP, or maybe they were just old Torchlight short sellers whose short positions had transformed, by operation of the dividend, into MMTLP short positions. Or maybe they were imaginary. But in any case, by 2022, “many investors were convinced that short sellers had placed massive, hidden bets against MMTLP.” This suggests that the 2021 MMTLP short-squeeze plan didn’t work: It turned out short sellers could still be short MMTLP. But the short-squeeze conspiracy playbook worked great: Torchlight was able to pump its stock in 2021 by predicting a short squeeze. So they apparently tried it again. Replacing MMTLP with Next Bridge shares was a way to make the shares even more non-tradable, to squeeze the shorts even more. Unlike MMTLP, Next Bridge shares, by design, would “not be eligible for electronic transfer through the Depository Trust Company or any other established clearing corporation,” so there is essentially no way at all to trade them, even over the counter. In its prospectus, Next Bridge very explicitly promised that this would cause a short squeeze: And, again, the plan worked. Not necessarily in the sense of causing a short squeeze — who knows — but in the sense of causing retail shareholders to believe in the short squeeze and buy the stock. In June 2023, the Wall Street Journal’s Alexander Osipovich reported: But then the Financial Industry Regulatory Authority stepped in: If you bought MMTLP in November 2022, expecting it to surge in December as short sellers hit their deadline for getting out of the stock, and then you held on a bit too long, you were stuck with — exactly what you were promised, non-tradable shares in Next Bridge. You’ve still got them. There is “substantial doubt about the Company’s ability to continue as a going concern,” said Next Bridge, in its most recent 10-Q, from last September. What have we learned? I want to emphasize how intense the MMTLP conspiracy theory is. Osipovich wrote last June: But what the SEC’s case today makes clear is that MMTLP was not a grass-roots movement of retail investors on social media who were aggrieved about short sellers. The whole thing was concocted by the CEO of Torchlight to pump up the stock to raise money. There really was a conspiracy against Torchlight/MMTLP investors, but it was not the short sellers who were conspiring, it was the CEOs of Torchlight and Meta Materials. Because if you run an unprofitable publicly traded oil company with lots of cash needs and no proven oil reserves, a short-selling conspiracy theory is very valuable to you! If you can get shareholders to believe that (1) all your problems are caused by short sellers, (2) you have found a way to punish the short sellers and (3) your scheme will also push the stock price up, then those shareholders will buy a lot of stock and you can make a lot of money.[5] This is all just as cynical as can be, tricking people into believing that the public markets are rigged against them by shadowy short sellers, in order to take their money yourself.[6] Or, of course, all of this is wrong, and the SEC is in on the conspiracy too. Always possible.

Over time wars are a series of tactical adjustments and counter-adjustments. Russia now launching cruise missiles from sea of azov to make it harder for Ukrainian drones to target them. https://www.twz.com/news-features/ukraine-situation-report-russia-now-launching-kalibr-cruise-missiles-from-the-sea-of-azov

Yea, that's why I said it was a claim. I see reports like these every so often, but so far none has rolled up into anything significant since Wagner's revolt so I've ignored them. This seems more like it was over religion, not politics.

In the short run prices are heavily influenced by cash flows in and out for every investment, but in this case I suspect the additional volume will be easily absorbed by the market.

Claims of uprisings in southern Russia today.

Stablecoins and regulatory arbitrage. https://frankmuci.substack.com/p/stablecoins-and-regulatory-arbitrage

The Mongols were the most dominant military power in world history, even more than the Romans. They conquered much of Eurasia in under 40 years. If Ogedei Khan hadn't died in 1241, we might all be speaking Mongolian as large Mongol armies had crushed every European army in open combat that dared oppose it in Russia, Hungary, Poland, Bulgeria, Serbia, Ukraine and Germany. There are two hypothesis for why they stopped short of conquering all of Europe and the north countries. The standard one is that Ogedei's death precipitated a power struggle as the generals rushed back to Mongolia to secure their positions in the new regime. But they also struggled with sieges against the heavily protected European forts and cities, and it appears that in 1242 European climate got colder and wetter, creating grassland and more marsh, making it harder to sustain horse armies in future attacks. Personally I think in-fighting did them in. They weren't just a bunch of super talented horse archers, since Ghengis Khan they had adopted the best tools of war from their opponents. They had excellent siege engines run by Chinese engineers, and were the first to use Gunpowder weapons in the European theatre, and their leaders were great strategic and tactical generals, Subutai might have been the greatest general in history. They had incredible reconnaissance as well as intelligence networks, and were super smart about adapting weapons to new uses (Subutai's use of seige catapults to clear a river crossing in Hungary for example). I bet if Ogedei had lived longer Batu and Subutai would have stayed focused on Europe and adapted their armies to more effectively deal with European fortifications and taken France and eventually Spain. The steppe tribes had a huge impact on China. For many centuries steppe war hardened tribes from the west would sweep into civilization softened China and conquer, establishing a new dynasty under their charge. The victors would enjoy the fantastic luxuries of Chinese civilization and their successors would grow soft over time, eventually to be invaded by another hard riding tribe from the west, who would replace them, rinse and repeat. Despite how much influence steppe tribes had as historic rulers of China, the Mongols are still hated for their genocidal massacres, and other acts. Geneticists think 8% of todays asian population are descended from Genghis Khan, so you can work out how that happened.

They have multiple apps, and one (Tantan) is a dating app. Their user counts have declined substantially the last three years (Tantan MAUs dropped from 27M to 14M) as they've been forced to filter out spam accounts and presumably prostitution accounts. But that said they've reduced headcount from over 2,000 people to 1,382 end of last year, so great track record of managing expenses to revenues to maintain positive cash flow. Q1 they had a small loss but it was caused by a one time increase in a tax reserve.

Thanks, I'm ok holding for a few years and letting buybacks/dividends work. Based on their buyback rates, they seem to think its worth a lot more than $6 as when it dropped below that mark they had their biggest repurchases of the last twelve months (they paid up to $7 pre-dividend, but at slower rates). So I got in at $5.70 feeling that they wouldn't let it decline too much. One theory I've seen about price action is that BABA is liquidating external investments like MOMO, so MOMO might be buying what BABA is dumping.

This comparison isn't very useful because the S&P 500 isn't a single entity, it's a combination of 500 different stocks with 500 different CEOs. Almost all of the those CEOs are likely significantly worse at capital allocation than Warren, but almost all have easier allocation decisions and more allocation options. And in reality, it's the biggest 7 companies and their CEOs that drive most of the present day S&P 500 value. Hard to pace it when nVidia appears to be growing to the moon and the rest, even Apple, have an AI shine.

I loaded up on MOMO (Hello Group) last week. Simple thesis is trading at about 80% of net cash, business declining but consistently profitable and some potential for a turnaround, and management scores an A+ on capital allocation. Dividend yield is close to 10% (though dividends are specials one time per year) and it's buying back shares at a good rate. I try to avoid China due to concerns on accuracy of financials and regulation. In this case regulation is the reason sales have been declining so potentially the worst is behind them, and I have more confidence in its cash position and cash flows are real due to the very high dividend payments the last 4 years along with the share repurchases.